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THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


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THE 


SCIENCE  OF  MONEY 


AND 


AMERICAN  FINANCES. 

■CONTAINING  A   PHILOSOPHY   OF   MONEY    IN    ACCORDANCE     WITH 
SCIENTIFIC  PRINCIPLES,  AND  ADAPTED  TO    THE 
WANTS  AND  CIVILIZATION  OF  THE  AGE. 


ALSO,  AN  ANALYSIS  AND  HISTORY  OF  THE 


FINANCIAL  OPERATIONS  OFTHE  GOVERNMENT, 


TTOGETHEK  WITH   SUGGESTED    REFORMS  IN  THE  MONETARY  SYSTEM   OF  THIS 
COUNTRY  ;    TO  WHICH    IS  ADDED  AN 


APPENDIX 


<30NTAINING   A    DIGEST    OF  THE    PUTiLIC  DEBT  AND  CURRENCY  LEGISLATION 
OF  THE  PAST    TWENTY  YEARS. 


BY 


HON    L.   V.  MOULTON. 


GEAND  EAPIDS,  MICH. 

1880. 


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Entered  according  to  Act  of  Congress,  m  the  year  1880,  by 
L.  V.  MOULTOX, 

In  the  office  of  the  Librarian  of  Congress,  at  Washington. 


Co-oPERATrvE  Prkss.  241  South  Water-st., 
Chicago. 


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Page  111 — 4th  line  from  hottom,  for  "currency"  read  policy. 
144 — 1st  line  of  ^  117,  for  -'November"  read  March. 
146 — In  tables,  for  "circulars"  read  certificates. 
149 — 7th  line  from  top,  for  "  was  less"  read  was  a  le?a  rate. 
178— 1st  line  from  top,  omit  "in  1880." 
187 — 18th  line  from  top,  for  "use"  read  issue. 
188 — 6th  line  from  bottom,  for  "different"  read  definite. 
191 — 20th  line  from  top,  for  "quality"  read  quantity. 
198 — 1st  line  of  ^  171,  for  "these  tables"  read  first  three  tables. 
216— In  Table  No.  7.  fur  "$"  read  Ions, 


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CO-OPEBATIVE  Prkss.  ?41  South  Watcr-st., 

CUICAGO. 


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TiETiICjiTIOy. 

To  those  who  do  the  work  which  produces  the  wealth  of 
the  world,  and  whose  labor  should  be  the  standard  by  which 
to  measure  its  value,  this  work  is  respectfully  dedicated. 


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PREFACE. 

The  author  of  the  present  treatise  were  more  than  human 
did  he  not  experience  some  slight  misgivings  upon  this,  his 
first  introduction,  to  the  reading  public.  The  task  he  has 
undertaken  is  one  of  no  little  magnitude,  and  in  its  accomplish- 
ment he  has  been  often  reminded  by  well-meaning  friends  as 
well  as  ill-disposed  enemies,  that  his  chances  of  success  are 
very  small.  The  purpose  had  in  view  has  been,  in  the  first 
place,  to  furnish  a  correct  and  thoroughly  reliable  philosophy 
of  money.  Many  of  our  most  eminent  statesmen  freely 
confess  themselves  totally  ignorant  of  the  principles  and 
economic  laws  of  money;  and  when  this  is  the  case  with 
statesmen,  the  condition  of  the  common  people  in  this  respect 
must  be  deplorable  indeed. 

This  work  is  intended  not  only  to  place  within  the  reach 
of  the  people's  leaders  the  information  required  to  dictate  a 
sound  financial  policy,  but  also  to  furnish  the  bone  and  sinew 
of  the  country  the  knowledge  necessary  to  recognize  wise 
legislation,  and  prevent  the  adoption  of  measures  which, 
though  seemingly  beneficial,  must  result  in  disaster.  The 
author  has  fondly  cherished  the  hope  that  this  little  treatise 
may  pave  the  way  for  a  currency  reform  in  this  country,  the 
need  of  Avhich  no  one  can  question  who  shall  carefully  con- 
sider the  facts  here  presented.  He  realizes  fully  that  no 
movement  toward  reform  may  be  expected  to  originate  among 
those  who  are  well  content  that  things  should  remain  as  they 
are,  and  he  has,  therefore,  striven  to  reach  by  simplicity  and 
homely  illustrations  the  minds  of  his  fellow-countrymen, 
whose  labor  he  considers  the  source  of  all  wealth,  and  whose 

[5J 


Vl.  PREFACE. 

labor  alone  he  is  firmly  convinced  should  be  made  the  standard 
of  value  in  money. 

No  little  assistance  has  been  received  from '  the  Treasury 
Department,  to  whom  thanks  are  due  for  the  uniform  prompt- 
ness and  courtesy  with  Avhich  all  questions  addressed  to  that 
department  have  been  answered. 

Valuable  historical  material  has  been  taken  from  Prof. 
Sumner's  History  of  American  Currency.  The  courtesy  of 
the  proprietors  of  the  Grand  Rapids  Eayh,  in  allowing  access 
to  some  valuable  works,  is  gratefully  acknowledged,  and 
thanks  are  extended  to  the  many  kind  friends  who,  by  word 
and  deed,  have  in  many  ways  encouraged  and  aided  the  writer, 
and  more  especially  to  Mr.  F.  L.  Lord,  without  whose  valuable 
and  efficient  assistance  the  work  could  not  have  been  accom- 
plished in  the  the  allotted  time. 

The  writer  sincerely  regrets  the  haste  with  which  he  has 
been  compelled  to  go  to  print.  Some  portions  of  the  book 
have,  on  that  account,  been  necessarily  left  incomplete,  while 
others,  for  the  same  reason,  possess  too  great  prolixity. 

No  attempt  has  been  made  to  cater  to  the  tastes  of  aristo- 
crats on  the  one  hand,  nor  to  the  pride  begotten  of  poverty 
on  the  other.  Hard,  stubborn  facts,  in  no  way  covered  by  the 
draperies  of  rhetoric,  are  here  presented  to  the  full  view  of 
the  ignorant  as  well  as  the  initiated,  and  it  is  hoped  that  the 
good  common  sense  of  the  American  people  will  suggest  the 
proper  mode  of  curing  the  evils  which  have  arisen  from  a 
broad  and  exceedingly  comprehensive  ignorance  on  these 
matters.  L.  V.  Modltois". 

Grand  Rapids,  Mich.,  Setember,  1880. 


CONTENTS. 


SCIENCE  OF  MONEY. 


INTIIODUCTION. 

SECTION.  PAGE. 

l^ecessity  of   Establishing  Principles 1  XI. 

Froduction  of  Wealtli 2  XI. 

Distribution  of  Wealth 3  XI^ 

Concentration  of  Wealth 4  XIII 

Necessity  of  Trade  and  Transportation 5  XIII. 

Necessity  of  Stable  and  Uniform  Standards 6  XIII. 

Standards  of  Value  Still  Crude 7  XIII. 

CHAPTER  I. 

SCIENCE  OF  VALUE. 

Definition  and  Cause  of  Value 8  17 

Laws   of  Value 9  18 

Formula 10  20 

CHAPTEE  II. 

SCIENCE    OF    MEASUREMENTS. 

Measurement  Defined 11  21 

Laws  of  Measurement 12  21 

Standard  Units 13  21 

Standard  of  Value U  22 

Effect  of  a  Fluctuating  Standard 16  22 

Measurement   of  the  Monetary   Unit 16  :3 

Formula  of  Measurement 17  25 

CHAPTER  III. 

DEVELOPMENT  OF    MONETARY  SYSTEMS. 

Laws  of  Development 18  26 

Primitive  Transportation  and  Trade 19  28 

Double  Barter 20  28 

Legal  Tender 21  30 

Transfer  of   Functions 22  31 

■Condilions  of  Transfer 23  32 

vii. 


viiL  CONTENTS. 

CHAPTER  IV. 

rUBLIC  vs.    PRIVATE   CTJRRENOT. 

Government  Currency 25  32- 

Bank  Currency 25  36 

The  Two  Coinl)inecl 26  37 

Analogies 27  38 

CHAPTER   V. 

PANICS. 

Bank  Currency  and  Panics 28  40- 

Stability  of  Gold  Standard 29  43 

Discount  of  Real  Tradisactioi;s 30  44 

Loans   and  Discounts 31  45 

National    Banks 32  48- 

The  "  Bullion  Report." 33  48 

CHAPTER  VI. 

DEJIOXSTRATION  OF  THE  PLILOSOPHY  OF  MEASUREMENT. 

Fluctuation  of  Prices 34  55 

Equality  of  Value  ;  Bases  of  All  Exchanges 35  56- 

General  Rise  or  Fall  in  Prices  ;  to  Wliat  Due 36      _      57 

Rise  of  Prices,  1834-36  ;  Bank  Inflation 37       '       58 

Fall  of  Prices,  1837-^3  ;  Panic  and  Contraction 38  58- 

Rise  of  Prices,  1843^7  ;  Bank  Inflation  and  Potato  Famine 39  58 

Fall  of  Prices,  1847-49  ;  Reaction  from  Famine 40  59 

Rise  of  Prices.  1849-57  ;  Gohl  Mines  and  Bank  Inflation 41  69' 

Fall  of  Prices,  1857-58  ;  Bank  Note  Panic 42  60 

Stationary  Prices.  1858-61 43  60 

Rise  of  Prices,  1861-66  ;  Government  and  Bank  Inflation 44  60 

Fall  of  Prices,  1866-69;  Contraction  and  Export  of  Bonds 45  62: 

Stationary  Prices,  1869-73 46  62 

Fall  of  Prices,  1873-79;  Panic,  Contraction,  and  Resumption 47  63 

Rise  of    Prices,   1880 ;    Inflation   by  Government    Disbursement, 

Bank-note  Currency,  and  Loans  and  Discounts 48  63- 

CHAPTER  VIL 

EXPERIMENTS. 

Damaging  Concessions 49  63 

HiiS  Paper  Money  Been   Fairly  Testetl? 50  64 

The   Bank   of  Venice 51  64 

The  Bank  of  Amsterdam 52  67 

The  Bank  of  England 53  68 

Suspension,  Inflation,  Contraction,  and  Resumption 54  69 

Panics  of  1825  and  1837 55  72 

Act   of    1844 56*  73 

Panics  of  1847,  1857,  and  1866 57  74 

CHAPTER  VIIL 

FRENCH  FINANCES. 

John  Law's  Land  Ba.sis  Bank 58  75 

Ti^  French  Assignat 59  75 

The  Present  French    System 60  77 

Protection  of  Industry 61  76 


CONTENTS.  Ix. 
CHAPTEK  IX. 

COIiONIAIi  EXPERIENCES. 

Aboriginal  Money 62  79 

First    American    Coinage 63  79 

Colonial  Foiicy   of  Great  Britain 64  80 

First  Government  Paper  Currency 65  80 

First  Bank  Currency 66  80 

Tlie  Constitution  and  the  Money  Power 67  81 

Continental  Money 68  82 

Kepudiatioa  vs.  Eesumption 69  84 


AMERICAN    FINANCES. 


CHAPTER  X. 


MOKEY  AND    THE    CONSTITUTION. 

Powers  of  Congress  Eelative  to  Money 70  87 

Eule  of  Interpretation 71  87 

Power  to  Borrow  Money 72  88 

Power  to  Coin   Money 73  88 

Power  to  Regulate  Its   Value 74  91 

Power  to  Pass  "Laws  Necssary    and  Proper." 75  92 

CHAPTER  XI. 

GOVERNMENT  AND    WILD-CAT    BANKING. 

First  United  States  Bank 76  93 

Wild-cat  Banking 77  93 

Second  United  States  Bank >. 78  95 

Bank   Opposition  to  Gold  Currency 79  97 

Inflation  Prior  to  the  Panic  of   1837 80  90 

Panic   of    1837 81  100 

Over  Production  Theory 82  102 

Discovery  of  Gold    in  California 83  102 

Panic  of  1853 84  102 

Panic  of  1857 85  103 

Suspension  of  1861 86  165 

Experience  with  Specie  Basis  Banking 87  105 

No  Compromise  Possible  with  the  Money  Power 88  105 

CHAPTER    XII. 

FINANCIAL  LEGISLATION  DURING  THE  WAR. 

Situation  at  the  Beginning  of  the  War 89  107 

Borrowing  vs.  Taxation 90  lOS 

Loan  Acts  of  July  and  August.  1861 91  111 

The  Associated  Banks  and  the  Demand  Notes 92  112 

Merits  of  the    Bank    Sclieme 93  118 

The  Demand  Notes 94  119 

Secretary  Chase's  Report,  December,  1861 95  120 

Greenbacks  vs.  Bank    Notes •  90  122 

Tlie  Legal  Tender  Act,  February  25,  18G2 97  124 


X.  "  CONTEXTS. 

Actof  Maroh  1,1862 98  126 

Act  of  March  17,   1862 99  126 

Effect  of  Jx>s;al  Tender  on  the  Vahie  of  Notes 100  127 

Certihcates  of  Deposit lOl  127 

Act  of  July  11,    1862 102  128 

Effort  to  Tax  Bank  Notes  Defeated 103  128 

Act    of  July   17,   1862 104  129 

Secretary's  Report,  December,  1862 105  129 

Another  Effort    to    Tax  Bank  Notes    Defeated 106  130 

National  Bank  Act 107  131 

Act  of  March    3,    1863 108  134 

Sale  of  5-20  Bonds 109  137 

Act  of  March  3,   186-1 110  138 

Secretary  Authorized  to  Sell  Gold Ill  138 

Question  First  Raised  on    Payment  of  5-20  Bonds  in  Coin 112  138 

Act  of  June  30, 1864 ;    Congress  Refuses  to  Insert  the  Words  '•  In 

Coin." 113  139 

National    Bank  Act  Revised  and  Re-enacted 114  142 

"Wm.  Pitt  Fessenden's  Report 115  143 

Act  of  January  28,  1865 116  143 

CHAPTER  XIII. 

FINANCIAI.   LEGISLATION    SINCE  THE  WAR. 

Loan  Act  of  March  3,  1865 117  144 

Ten  Per  Cent.  Tax  on  State  Bank  Circulation 118  147 

Debt  at  Its  Highest  Pouit,  August  31, 1865  ;  How  Payable  ;  Amount 

and  Kind  of   Interest  Paid 119  148 

Report  of  Hugh  McCulloeh  December,  1865  ;  War  Measure  Doctrine  ; 

Contracts    and  Funding 120  149 

Act  of  April  12,  1866.    Funding  the  Greenbacks 121  152 

•Secretary's  Report  December,  1866.    Evasion  of  the  Law  Limiting 

Contraction.    Funding  Not  Paying  Debt 122  152 

Act  of  March  2,  18C7.    Three  Per  Cent.  Certificates 123  153 

Secretary's  Report,  December,  1867 124  125 

Act  of  March  26,  1867.    Sample  Legislation.    Tax  on  Municipal 

Scrip  Covered  with  Wrapping  Paper 125  156 

Act  of  Februafy  4, 1868 126  157 

Secretary's  Report,  December,  1868 127  157 

Act  of  March  18,  1869.    Fraud  and  False  Pretense.    Public  Credit 

Act 128  158 

Act  of  July  14,  1870 129  162 

Disturbance  of  Prices  Effected  by  Exporting  Bonds 130  165 

Act  of  February  12, 1873.    How  Silver  was  Demonetized 131  165 

National  Banks  Kelieved  from  Circulation  Reserves ],32  168 

Resumption  Act  of  January  14,  187.")  133  168 

R'soiution  of  July  22,  1876.     Fractional  Currency  Replaced   by 

Silver 134  169 

Panic  of  1873 135  170 

Contraction  for  Resumption— Its  Effect 136  172 

The  People  Aroused  ;  Organize  in  Self-defense 137  173 

The  Act  of  February  2R,  1878.   Pretcnilccl  Rcnionctizing  of  Silver. 

Subsidiary  Dollar.    Silver  the  More  Honest  Metal 138  173 

Act  of  May  31,  1878.     Prohibits  Retiring  (Ireenbacks.    Secretary 

Announces  Ills  Intention  to  Defeat  tiie  Law 139  175 

Act  of  February  26,  1870.    Permitting  Secretary  to  Retire  All  the 

Greenbacks 140  176 


CONTENTS.  XI. 

Paper  Resumption  -Critical  Situation 141  l"7 

Situation  in  tlie  Banks  June  30, 1880 14fi  178 

Summary  of  Legislation  Since  ISCO 143  180 

CHAPTER  XIV. 

CONCLUSIONS. 

What  Should  Now  be  Done .• 144  184 

■Congress  Sliould  Coin  Money  and  Regulate  Its  Value 145  185 

Pay  tlie  Bonds  According  to  Contract .  146  185 

Suppress  the  Bank  of  Issue 147  isG 

The  Merchandise  Standard 148  186 

Automatic  Regulation 149  187 

No  Mure  Bonds 150  1S8 

International  Trade,  "  Money  of  the  World" 151  188 

The  Labor  Standard 152  190 

Standard  and  Measure  Need  Not  Be  Identical 153  190 

Whatever  Costs  the  Standard  is  Worth  the  Standard 154  190 

Substituting  Labor  for  Bullion 156  190 

Advantage  to  Both  the  Government  and  the  People 156  191 

Absolute  Self-regulation  and  Stability 157  192 

■Only  Plan  Conforming  to  All  the  Laws  of  Value 158  192 

Postal  Saving  and  Exchange  System 159  193 

CHAPTER  XV. 

TABLES  AND  DIAGRAMS, 

necessity  for  Facts  as  a  Basis  of  Reasoning I60  194 

Tahlc  1.— Prices  of  Merchandise  and  Value  of  Currency  for  50  Years. 
Currency  Prices  of  Coin  and  Coin  Prices  of  Currency  and  Gold, 
and  Merchandise  Value  of  412!4  Grains  of  Standard  Silver  for  2U 
Years 161  195 

Table  2.— International  Trade.  Gross  v^mounts  and  Balances.  Price 
Paid,  Amounts  of  the  Dr.  and  Cr.  Periods,  and  American  Produc- 
tion of  Bullion.    1830-18.80 162  196 

■TahJe  3.--Table  of  Currency,  Loans  and  Discounts,  Re-serves,  Coin- 
age, and  Population    1830-1880 163  196 

•!raibZe4.— Public  Debt  Statement  from  i860  to  1889,  Showing  Each 
Kind  of  Paper  Outstanding,  and  the  Amount  Each  Year  and  To- 
tals, with  Reference  Letters  to  Digest  of  Statutes,  and  Classified 
as  A,  Legal  Tender  ;  B,  Payment  of  Principal  Not  Specified  ;  C, 
Payment  in  Coin  ;  D,  Payable  in  Currency 164  196 

Table  5.— Nominal  Transactions  between  Government  and  its  Cred- 
itors, as  reported  by  the  Secretary  of  the  Treasury 165  196 

Table  6.— Sa-'^'e  as  No.  5,  with  Transactions  and  Outstanding  Bal- 
ances Reduced  to  Coin  Value  at  the  Time,  Showing  the  Total 
Borrowed  and  Paid  on  Principal  and  Interest.  Also  Column  of 
Dr.  and  Cr.  Balances,  with  and  Without  6  Per  Cent.  Compound 
Interest 166  197 

TaMe  7.— Same  Reduced  to  Standard  Tons  of  Merchandise,  Show- 
ihg  Number  of  Tons  Required  to  Pay  Outstanding  Debt  in  Com 
or  Currency  Each  Year,  from  1860  to  1880 167  197 

Ta?)te  8.— A  Digest  of  Legislation  with  Regard  to  the  Public  Debt 
Since  1860,  Divided  into  Susi)ension,  Inflation,  Contraction,  First 
and  Second  Funding  Periods,  with  Tables  Showing  Changes  in 
Outstanding  Paper  of  Classes  A,  B,  C,  and  D  ;  also  a  Column 
Showing  Hoarding  in  the  Treasury  as  a  Part  of  the  Scheme 178  197 


Xll.  ^  CONTENTS. 

Tahle  9— Shows  the  Nominal  and  Merchandise  Value  of  the  Gov- 
ernment Revenues 169  198 

Table  lu— Shows  Important  Facts  With  Regard  to  the  Public  Debt, 
Amount  and  Value  Borrowed  and  Paid,  Currency  and  Coin  In- 
terest, Purchasing  Power,  etc.,  for  the  Four  Important  Periods  : 
1860,  Commencement  of  the  War :  1866,  Close  of  the  War,  and 
First  Fnnding  ;  1870,  SecoufJ  Funding  ;  1879,  Resumption 170  198 

Diagram  1.— Illustrates  the  Tncrease  and  Decrease  of  Amounts  in 
the  Preceding  Tables,  and  Presents  at  a  Glance  the  Relationship 
between  Currency,  Coinage,  Bullion,  Loans,  Prices,  Imports,  Ex- 
ports, Population,  and  Changes  m  the  Value  of  Currency,  Gold, 
Silver,  and  Paper  Money  from  1830  to  1880 171  198' 

Diagram  2— Represents  the  Interest  Paid  on  the  Public  Debt, 
Showmg  the  Coin,  Currency,  and  Total  Amounts  Paid  ;  also  Its 
Coin  and  Merchandise  Value 172  201 

Diagrams  6,  7,  8  and  9— Represent  Tables  of  Corresponding  Num- 
bers, and  Give  a  Clear  Idea  of  the  Actual  Increase  ol  the  Debt, 
both  Principal  and  Interest,  while  being  Nominally  Decreased ...    173  201 

APPENDIX. 

Giving  in  Full  theText  of  All  Important  Financial  Leoislation  Since 
I860,  with  Marginal  References  to  the  Tables 229 

AFFIDAVIT. 

Affidavit  of  Clerk,  Attesting  the  Authenticity  and  Correctness  of 
Tables  and  Figures 27a 


INTRODUCTION. 


-^^ 


§  1.  Before  we  can  profitably  discuss  any  matter  we  must 
know  something  of  the  principles  involved,  and  must  be 
familiar  with  all  the  circumstances  of  the  case.  It  would  be 
idle  to  talk  of  the  advantages  of  a  different  adjustment  or 
construction  of  parts  in  the  steam  engine  to  an  engineer 
who  merely  kjiew  that  steam  in  someway  made  the  machine 
go.  He  must  know  how  it  is  made  to  move,  the  structure 
of  the  different  parts,  and  the  principles  upon  which  it 
operates.  Knowing  these  things  with  regard  to  the  machine 
in  use,  he  would  be  able,  from  a  description  of  a  proposed 
device,  to  know  exactly  how  it  would  work.  This  is  as  true 
with  regard  to  money  as  steam  engines.  Hence,  our  first 
business  is  with  the  science  of  money.  We  must  analyze 
the  subject,  and  establish  a  philosophy  which,  if  correct,  will 
lead  to  correct  practice. 

§  2.  The  end  chiefly  sought  in  the  different  occupations  of 
mankind  is  the  acquirement  of  wealth.  Any  nation  or 
community,  as  a  whole,  will  possess  wealth  in  proportion 
to  its  natural  resources  of  soil,  timber,  and  minerals, 
coupled  with  the  amount  of  labor  expended,  and  the  effect- 
iveness of  its  machinery  and  tools  of  production,  transporta- 
tion, and  exchange. 

§  3.  The  ultimate  distribution  of  wealth  among  individuals, 
however,  is  very  seldom  proportioned  to  the  labor  performed, 
except  in  a  crude  state  of  society.  Natural  resources  are 
then  accessible  to  all,  and  the  simple  methods  of  production, 
transportation,  and  exchange  require  little,  if  any,  capital  or 
accumulated  products  of  labor.  All  are  then  substantially 
placed  upon  an  equal  footing. 


xii.  INTRODUCTION. 

As  civilization  progresses,  these  natural  resources  are 
appropriated,  and  those  who  come  after  all  are  seized  are 
compelled  to  pay  more  or  less  tribute  to  gain  access^ 
to  them.  Moreover,  as  the  mechanisms  of  production, 
transportation,  and  exchange  are  made  more  effective  by 
artificial  processes,  capital  is  required  to  operate  them;  and 
how  much  of  the  gain  due  to  improved  methods  will  be  real- 
ized by  individuals  must  depend  upon  a  variety  of  complex 
conditions. 

If  we  indicate  the  natural  supplies  capable  of  appropria- 
tion as  land,  the  accumulated  products  of  labor  as  capital, 
the  remaining  element  of  production  will  be  labor.  Land 
supplies  the  material  to  be  wrought  upon;  capital  supplies 
the  tools  which  make  labor  more  effective,  and  labor  the 
effort  necessary  to  produce  wealth.  If  these  three  were 
uniformly  distributed  among  the  whole,  each  could  have  no 
advantage  over  the  other. 

But  this  equality  would  not  long  continue.  Some  would 
save;  others  would  spend.  Some  would  work:  others  would 
not.  Some  would  soon  be  without  land  or  tools,  while  those 
who  retained  them  would  begin  to  require  a  consideration 
from  those  desiring  to  use  them.  At  first  there  would  be  but 
few  of  the  latter  class,  but  once  the  equilibrium  is  disturbed^ 
the  concentration  progresses  until  the  few  possess  the  land 
and  capital,  and  the  many  are  pauperized.  If  this  continue  to 
such  an  extent  that  one  man  acquires  all  of  both,  none  can 
produce  or  possess  anything  except  at  his  pleasure.  He  is 
despotic  in  his  power,  and  they  are  actually  slaves.  If  this 
be  true  of  a  class  of  men,  they  have  but  to  combine,  and  the 
same  result  follows.  Many  suppose  it  is  the  natural  result 
of  civilization,  that  the  mass  should  do  all  the  work,  and^ 
having  no  capital,  should  acquire  a  mere  subsistence  as  its 
share,  while  the  few  do  nothing  and  appropriate  the  balance. 
Whether  this  be  true  or  not,  it  is  not  intended  here  to  show. 
It  is  certainly  a  state  of  affairs  not  to  be  desired  by  the  many, 
and  if  it  can  be  delayed  or  prevented  without  injustice  it 
should  be  done.  Concentration  of  wealth  in  the  hands  of 
the  few  confers  the  power  of    oppression.     To  discover  a 


INTRODUCTION.  xiii. 

remedy  for  this  evil  it  is  necessary  to  understand  how  the 
evil  arises. 

§  4.  This  concentration  is  not  altogether  the  result 
of  prudence  and  industry  on  the  one  hand,  and  of  folly 
and  idleness  on  the  other.  There  are  many  other 
causes.  All  trade  is  an  effort  to  get  as  much  and  give  as 
little  as  possible.  Free  competition  will  enforce  fair 
exchange,  while  monopoly  confers  a  power  of  extortion. 
In  borrowing  and  lending,  a  vicious  monetary  system  may 
enable  some  to  obtain  usury  without  lending  at  all,  and  by 
changes  in  the  value  of  the  unit  the  value  of  money  con- 
tracts are  changed,  and  men  are  enabled  to  get  more  than 
their  due,  or  pay  less  than  they  owe.  These  and  minor 
causes  all  tend  to  an  unjust  concentration  of  wealth. 

§  5.  In  consequence  of  difference  in  soil,  climate,  etc., 
certain  articles  can  only  be  produced  in  certain  localities, 
and  transportation  becomes  a  necessity.  This,  together  with 
the  increased  power  of  production  due  to  division  of  labor, 
gives  rise  to  exchange.  If  things  could  be  conveniently  and 
profitably  produced  where  consumed,  and  by  the  persons  so 
consuming,  neither  transportation  nor  exchange  would  be 
resorted  to. 

Evidently  the  mechanisms  of  transportation  and  exchange, 
and  the  labor  necessary  to  operate  them,  add  nothing  to  the 
amount  produced,  and,  this  being  the  case,  any  unnecessary 
transportation  or  exchanges  should  be  avoided,  while  that 
which  is  necessary  should  be  accomplished  with  as  little  loss 
and  friction  as  possible. 

§  6.  In  the  oi'dinary  process  of  exchanging  goods  they 
are  measured  twice — first  to  ascertain  their  quantity,  and 
next  to  determine  their  valve.  It  is,  therefore,  necessary  to 
have  some  standard  units  of  quantity  and  value.  To  insure 
correct  measurements,  uniformity  of  standards  is  necessary, 
and  to  insure  correct  fulfillment  of  contracts,  stability  of 
standards  is  indispensible. 

§  T.  We  have  learned  to  measure  our  goods  accurately  as 
to  quantity,  and  have  good  standards  of  length  and  weight, 
but  when  it  comes  to  matters  of  value,  we  are  as  crude  as 
hose  who  weighed  with  beans  or  measured  with  the  arm. 

When  a  man  contracts  to  deliver  so  many  feet  of  lumber, 


xiT.  LNTEODUCTION. 

or  bushels  of  wheat,  or  yards  of  cloth,  he  knows  that  the 
same  quantity  will  be  represented  by  such  contract  when 
it  is  due  as  when  it  is  made,  no  matter  what  time  may 
intervene.  Not  so,  however,  with  value.  It  becomes  alto- 
gether a  matter  of  uncertainty  what  a  contract  for  so  many 
units  of  value  will  mean  at  a  future  time.  We  never  have 
had  a  reliable  standard  of  value,  and  some  of  our  neighbors 
would  have  us  believe  that  we  never  can  have. 

We  can  encircle  the  globe  with  a  wire,  and  with  the 
tamed  lightning  for  our  messenger,  annihilate  space.  The 
iron  horse,  with  fire  for  his  food,  and  breath  of  smoke  and 
steam,  tramping  with  earthquake  tread,  from  shore  to  shore, 
rushes  from  the  Atlantic  to  the  Pacific  in  a  few  hours, 
dragging  hundreds  of  tons  of  merchandise  behind  him. 

We  can  measure  the  distance  of  the  fixed  stars,  and  ques- 
tioning a  ray  of  light,  obtain  from  it  a  cheaiicai  analysis 
of  the  orb  from  which  it  emanated,  although  this  ray  of 
light  may  have  been  traveling  at  the  rate  of  millions  of  miles 
a  minute,  during  the  lifetime  of  a  generation  of  man. 

We  can  converse  with  each  other  through  a  thread  of  metal 
miles  in  length. 

We  can  light  our  houses  with  a  streak  of  lightning 
pumped  from  a  magnet,  until  the  constant  flash  from  carbon 
to  carbon  rivals  the  noonday  sun  in  brightness,  yea,  even 
gives  life  to  vegetation. 

The  artist  bringing  to  his  aid  the  modern  Cyclops  with 
wooden  head  and  eye  of  glass,  and  conjuring  up  the  bottled 
imps  of  the  alchemist,  will,  with  the  flaming  pencil  of  the 
sun,  in  a  moment  of  time,  produce  a  portrait,  "warts, 
wrinkles,  and  all,"  that  would  delight  the  heart  of  a  Crom- 
well and  astonish  a  Raphael. 

All  this  we  do,  and  more;  and  yet  of  that  peculiar  thing, 
"  value,''^  we  cannot  establish  a  reliable  standard,  but  must 
be  always  gambling  against  unknown  fluctuations,  when- 
ever we  contract  to  pay  money  at  a  future  time.  Here 
opinions  differ,  and  in  this  treatise  will  be  shown  how 
improvements  may  be  made.  "  We,  the  people,"  are  think- 
ing of  the  matter,  and  it  is  to  be  hoped  that  the  "agitation 
of  thought,"  in  this  case,  will  be  the  beginning  of  wisdom. 


THE  SCIENCE  OF  MONEY. 


■a'ITI  '  ♦  •  CZ^i^ 


CHAPTER  I. 

SCIENCE   OF   VALUE. 

§  8.  As  the  philosophy  of  production  and  transportation 
rests  upon  the  principles  of  statics  and  dynamics,  so  also  that 
of  exchange  rests  upon  those  of  value.  The  first  question  is, 
then:  "What  is  value,  and  what  is  its  cause?" 

Value  is  not  a  property  or  quality  of  things.  It  is  not  in- 
herent in  anything  by  virtue  of  its  own  nature.  It  is  not 
like  length,  or  weight.  Things  may  be  long  or  heavy  in 
and  of  themselves,  regardless  of  man,  or  his  existence;  but 
without  man  there  could  be  no  value.  Hence,  intrinsic 
value  in  its  literal  sense  is  a  misnomer. 

Value  is  extrinsic,  and  the  result  of  a  combination  of  cir- 
cumstances. The  first  is,  that  the  article  to  which  it  pertains 
should  be  desired  by  man;  the  second,  that  there  should  be 
some  form  of  restriction  upon  the  supply,  so  that  there  is 
produced  a  sort  of  resistance  to  the  gratification  of  the  desire. 
The  whole  matter  can  be  reduced  to  a  problem  of  the 
dynamics  of  demand  and  supply,  the  value  increasing  and 
decreasing  with  this  tension  between  supply  and  demand, 
and  disappearing  altogether  either  when  the  restrictions  upon 
supply  are  removed,  or  when  the  demand  ceases  to  exist. 
Many  confound  utility  with  desirability ;  but,  correctly 
speaking,  if  a  thing  be  useful,  its  utility  is  the  cause  of  its 
being  desii-ed.     Some  confound  utility  with  value;  but  there 

is  no  connection  between  utility  alone  and  value.     A  thing 

[17]  2 


i"  THE  SCIENCE  OF  MONEY. 

may  he  of  great  utility  and  without  value,  like  the  air  we 
breathe;  or  of  little  utility  and  of  great  value,  like  the 
diamond. 

§  9.  We  have  now  discovered  the  cause  of  vahie  to  be 
desirability,  combined  with  restricted  supply,  neither  alone 
being  capable  of  producing  it.  Without  the  former,  the- 
the  article  would  not  be  used  or  known  to  trade;  without  the 
latter,  it  would  be  freely  had,  and  would,  like  the  air  we 
breathe,  become  destitute  of  mercantile  value.  Both  circum- 
stances being  present,  the  amount  of  the  value  depends  upon 
the  restriction  of  supply  as  related  to  the  demand. 

The  supply  being  restricted  to  a  fixed  amount,  an  increase 
or  decrease  in  demand  would  produce  a  corresponding  in- 
crease or  decrease  in  value. 

The  demand  for  an  article  remaining  fixed,  a  decrease  in. 
restriction  would  result  in  a  correspondiug  decrease  in  value^ 
and  an  increase  in  restriction  would  increase  the  value,  until 
the  price  should  rise  above  the  limit  of  the  desire,  when  the 
article  would  disappear  from  the  marke  s,  precisely  as  when 
the  friction  exceeds  the  power  the  machine  stops. 

Both  the  demand  and  the  restriction  moving  together  in- 
crease the  effect  on  the  value;  while  moving  in  opposite 
directions  they  tend  to  neutralize  the  effect  of  each  other. 

The  demand  for  an  article  may  arise  from  two  different 
causes:  a  desire  to  possess  for  immediate  use  or  consumption^ 
or  a  desire  to  possess  for  future  use.  When,  from  the  nature 
of  the  article,  hoarding  becomes  impossible,  as  in  the  case  of 
perishable  fruit,  the  demand  is  limited  to  the  capacity  for 
immediate  consumption,  and  a  small  decrease  of  restriction 
of  supply  causes  an  enormous  decrease  of  value,  while  a 
small  increase  of  restriction  produces  only  a  small  increase 
in  value. 

Wlien,  however,  an  article  from  its  imperishability  may 
be  hoarded,  as  in  the  case  of  money,  these  disproportionate 
changes  do  not  occur.  But  the  demand  for  any  merchandise 
always  has  a  practical  limit,  while  the  demiind  for  money 
never  cejises.  Decreiise  the  restriction  of  tlie  supi)ly  enor- 
mously, and.  although  it  decreases  enormously  in  value,  yet 
the  demand  for  it  is  as  great  as  ever,  because  it  represents  all 
thiuirs  of  value. 


SCIENCE  OF  VALUE.  19 

The  restriction  upon  supply  may  arise  from  two  sets  of 
causes,  the  one  natural  and  the  other  artificial.  The  first  is 
commonly  known  as  labor  cost  or  cost  of  production,  the 
other  as  monopoly.  It  is  very  seldom,  however,  that  either 
set  of  causes  operates  separately;  usually  some  combination 
of  both  produce  the  restriction.  In  cases  where  the  cost  of 
production  is  the  only  restriction  upon  supply,  this  cost  will 
operate  to  determine  the  value,  and  motives  of  profit  will 
continually  adjust  the  value  to  correspond  with  such  cost. 
Sucii  articles  may  be  said  to  have  their  normal  value  in  the 
market. 

Suppose  wheat  and  plows  to  be  of  this  nature.  If  now  it 
costs  the  same  to  produce  one  plow  as  to  produce  ten  bushels 
of  wheat,  and  the  price  of  plows  by  an  increased  demand 
chauges  to  the  value  of  eleven  bushels  of  wheat,  motives  of 
profit  would  induce  some  to  quit  the  production  of  wheat 
and  produce  plows,  until  the  increased  supply  would  correct 
the  value.  The  same  readjust uient  would  in  like  manner 
occur  if  plows  should  fall,  instead  of  rise,  in  value. 

Suppose  now  a  diminution  of  the  cost  of  production  re- 
duces the  resriction  one  half.  Could  all  avail  themselves  of 
the  change,  the  value  of  plows  would  soon  change  the  same. 
If,  however,  this  change  in  cost  of  production  is  secured  by 
one  or  more  persons  only,  all  the  rest  being  obliged  to  make 
plows  as  before,  tbe  price  would  then  become  purely  a  mat- 
ter of  option  with  the  monopolists  between  the  limits  of  five 
and  ten  bushels  of  wheat.  A.t  the  upper  limit  competition 
would  check  them,  and  at  the  lower  other  business  would  be 
as  profitable,  and  operate  as  a  check.  If  it  were  possible  to 
reduce  this  production  to  comptiratively  no  cost — say  make 
paper  plows — they  could  be  furnished  at  any  price  from  ten 
down.  It  must  be  observed  that  all  this  adjustment  is  a 
matter  of  tension  between  supply  and  demand,  the  restric- 
tion imposed  by  the  monopolist  operating  exactly  as  a  sub- 
stitute for  the  restriction  of  labor  cost.  The  i»rice  can  only 
be  maintained  by  restricting  the  supply.  If  they  should  be 
sold  at  nine,  and  more  be  placed  in  market  than  would  be 
taken  at  that  price,  monopolists  would  have  to  reduce  the 
price,  or  keep  the  surplusage.     Hence,  it  will  be  seen,  that  a 


20  THE  aCIENCM  OF  MONEY. 

fixed  price  will  determine  the  supply  that  will  be  absorbed. 
By  constant  increase  of  supply  against  a  uniform  demand, 
there  might  come  a  time  when  no  more  would  be  taken  at 
any  price,  and  plows  would  then  be  worthless. 

If,  however,  a  cheap  substitute  for  plows  were  contrived 
and  placed  in  market,  the  result  would  be  to  depress  the 
prices  of  both,  as  both  plows  and  substitutes,  taken  together, 
would  constitute  the  supply.  If  no  restriction  but  cost  of 
production  determined  the  supply  of  the  substitutes,  the  rule, 
"  Things  of  like  utility  are  of  like  value,"  would  not  main- 
tain the  value  of  the  substitute,  but  the  plows  would  fall, 
and  the  producers  doing  a  losing  business  would  cease  mak- 
ing them,  and  plows  would  disappear  from  the  market.  If, 
however,  the  substitutes  were  restricted,  either  by  the  pro- 
ducer's option  or  otherwise,  their  cost  of  production  would 
cease  to  have  any  influence  on  the  value.  These  are  funda- 
mental principles,  and  should  be  clearly  understood,  as  the}^ 
apply  to  mone}^  as  well  as  to  plows  and  wheat. 

§  10.  The  whole  doctrine  of  value  may  be  formulated 
thus:  Things  useful  are  desirable,  and  the  desire  Avill  induce 
men  to  make  effort  to  obtain  them. 

The  amount  of  this  effort  determines  their  natural  or  labor 
cost,  or  normal  value.  Their  price  or  market  value  is  deter- 
mined by  the  tension  between  supply  and  demand  produced 
by  restriction  of  supply. 

In  case  of  a  fixed  supply,  the  demand  will  determine  the 
tension  or  value. 

In  case  of  a  fixed  demand,  the  supply  will  determine  the 
tension  or  value. 

In  case  of  fluctuations  in  both,  the  relative  movements  will 
determine  the  tension  or  value. 

In  the  absence  of  monoply,  motives  of  profit  will  induce 
such  supply  as  will  adjust  the  market  value  to  correspond 
with  the  normal  value. 

In  the  presence  of  monopoly,  the  upper  limit  to  market 
value  is  the  intensity  of  the  demand,  and  the  lower  limit  is 
the  cost  of  production;  between  those  limits  it  is  purely  a 
matter  of  option  with  the  monopolist.  But  he  can  only 
reguhite  the  value  through  an  increase  and  decrease  of 
supply. 


SCIENCE  OF  MEASUREMENTS.  21 

CHAPTER  II. 

SCIENCE  OF  MEASUREMENTS. 

§  11.  All  measurements  are  but  comparisons  with  some 
.standard  unit.  Without  a  definite  idea  of  the  unit,  we  can 
have  no  idea  of  the  aggregate.  If  we  know  nothing  of  one 
horse,  one  thousand  horses  would  mean  nothing.  Quantities 
of  some  things  are  naturally  divided  into  units,  or  individu- 
alized as  animals,  men,  etc.,  others  have  to  be  divided  artifi- 
cially, as  water,  cloth,  etc.  If  we  had  no  definite  idea  of  a 
gallon  or  yard,  we  could  get  no  idea  of  quantity  from  the 
expression  indicating  a  number  of  gallons  or  yards.  We  can 
say  100  gallons  or  400  quarts;  or  100  yards  or  900  square 
feet,  and  so  long  as  the  unit  is  definite  and  fixed,  it  matters 
not  that  we  use  different  units.  But  if  the  unit  is  sometimes 
one  quantity  and  sometimes  another,  100  gallons  or  yards 
would  be  indefinite,  and  might  be  one  thing  at  one  time,  and 
quite  different  at  another.  Such  has  been  our  monetary 
unit,  as  we  shall  see. 

§  12.  All  merchandise  is  usually  measured  twice.  We  first 
measure  for  quantity,  and  then  its  monej'  price  is  the  measure 
of  its  value.  But  in  comparing  two  things  v/ith  each  other, 
if  there  is  any  change  in  their  relative  length,  it  is  not  always 
easy  to  tell  which  has  changed.  Take,  for  example,  two 
pieces  of  wood,  both  liable  to  change  in  length.  Make  them 
alike,  and  after  a  tim^  should  they  be  found  to  differ,  it  will 
be  impossible,  without  i-eferring  to  some  third  thing,  to  know 
whether  one  or  both  have  changed,  or  how  much,  or  whether 
the  change  is  an  increase  or  decrease  in  length.  The  same  is 
true  of  values. 

§  18.  In  matters  of  length  and  weight,  we  are  dealing  with 
qualities  of  things,  and  the  solution  is  easier.  Yet  we  were 
unable  to  find  any  natural  standard  of  either,  and  have  long 
ago  abandoned  cubits,  barley-corns,  and  beans  for  such  pur- 
poses. Now  we  measure  our  standard  of  length  by  a  day  of 
time,  although  time  cannot  be  said  to  consist  of  anything 
comparable  with  feet  and  inches.  This  involves  a  principle 
essential  to  all  correct  measurements,  and  on  that  account 
merits  a  very  careful  consideration. 


22  THE  SCIENCE  OF  MONEY. 

The  day  of  time  has  uniformity  of  duration.  The  quality 
absent  in  the  cubit,  barley-corn,  etc.,  is  uniformity  of  exten- 
sion. There  is  found  to  be  a  fixed  ratio  between  duration  of 
motion  and  extension, in  the  pendulum.  A  pendulum,  having 
a  stroke  of  a  given  duration  in  a  given  latitude,  is  found  to 
be  always  of  the  same  length.  If  we  find  something  having 
a  like  uniform  ratio  between  extension  (or  quantity)  and 
weight,  by  a  like  process  we  could,  and  do,  obtain  our  standard 
pound.  From  the  day  we  obtain  the  foot,  from  the  foot,  the 
pound.  Now,  if  there  were  a  similar  ratio  between  weight 
and  value  in  any  one  article,  we  could  make  money  that  would 
be  a  standard  of  value.  But  this  can  never  be,  for,  as  we  have 
seen,  uniformity  of  value  depends  upon  uniformity  of  tension 
between  supply  and  demand,  not  weight. 

§  14.  Gold  and  silver  have  always  been  regarded  the  most 
suitable  kinds  of  merchandise  for  currency.  They  would  on 
that  account  necessarily  come  into  use  as  money  regardless 
of  their  qualities  as  a  standard  of  value.  Reasoning  upon 
the  matter,  Adam  Smith  considered  corn  (now  called  wheat) 
the  most  stable  merchandise  as  a  standard  of  value,  but  con- 
cludes labor  to  be  the  true  and  only  correct  standard.* 

Value  being  the  result  of  a  combination  of  circumstances 
relating  to  the  article  to  which  the  value  pertains,  it  is  more 
difficult  to  measure;  and  we  are  still  using  the  assumed  or 
natural  standard,  making  our  unit  the  value  pertaining  to  a 
fixed  weight  of  a  certain  metal.  The  consequence  is,  that 
any  change  in  the  unit  changes  the  nominal  value  of  things 
generally.  This  changes  every  contract  to  pay  money. 
Although  theoretically  we  promise  "value  received,"  we  are 
really  compelled  to  give  such  value  as  may  chance  to  pertain 
to  a  certain  quantity  of  a  certain  merchandise. 

§  15.  These  changes  in  the  money  unit  have  this  peculiar 
feature,  that  the  amount  of  the  result  is  not  the  same  when 
money  increases  in  value  as  when  it  decreases.  Suppose,  for 
example,  that  money  is  in  such  supply  that  a  horse  is  worth 
$100  and  a  bushel  of  wheat  $1.  Now  if  the  money  increases 
in  amount  or  is  "intiated"  until  horses  are  worth  $200  and 
wheat  §2  per  bushel,  and  during  this  time  of  inflation  A 

♦  Wealth  of  Nations,  page  40. 


SCIENCE  OF  MEASUREMENTS.  23 

holds  B's  note  for  $100,  given  for  a  horse,  it  will  be  observed 
that  for  50  bushels  of  wheat  or  one-half  tne  ''value  received," 
B.  cancels  his  note  and  the  creditor  is  defrauded  by  the 
change  of  value  in  the  standard.  Reverse  the  process,  and 
if  A  has  now  B's  note  for  a  simihir  horse  (valued  still  at 
100  bushels  of  wheat),  but  worth  |200,  the  dollars  being  but 
half  their  former  value,  although  they  weigh  and  contain  as 
much  precious  metal,  he  promises  the  same  value  as  in  the 
first  purchase,  but  twice  the  metal.  During  the  time  the 
note  runs,  contraction  restores  prices  to  their  former  level, 
and  now  this  second  note  is  good  for  double  its  value  received, 
and  equal  to  two  horses  or  200  bushels  of  wheat.  By  the 
inflation  of  one-half,  the  creditor  lost  50;  by  the  contraction, 
he  gained  100,  and  it  proves  to  be  a  game  of  "  heads,  we  cred- 
itors win;  tails,  you  debtors  lose,"  instead  of  legitimate  busi- 
ness. It  is  very  evident  that  in  communities  doing  a  credit 
business,  a  stable  standard  of  value,  as  a  means  of  payment, 
is  very  important.  The  question  is  ho\r  to  measure  and 
correct  our  standard. 

§  16.  There  are  two  practicable  and  scientific  methods  of 
accomplishing  this,  which  are  easily  understood. 

The  first  is  one  of  averages.  It  has  been  shown  that  all 
articles  not  subject  to  monopoly  in  their  production,  con- 
stantly tend  to  a  certain  level  conforming  to  their  cost  of 
production.  They  individually  fluctuate  or  oscillate  across 
this  level  in  an  irregular  manner,  and  when  one  is  up,  another 
is  likely  to  be  down.  Hence,  if  we  ascertain  the  average  line, 
among  a  number  of  them  we  will  have  a  much  better  stand- 
ard than  any  one  alone  could  possibly  furnish.  It  is  as 
though  a  number  of  objects  were  floating  on  water  which  is 
put  in  motion  by  the  wind.  They  would  be  irregularly  ele- 
vated and  depressed,  and  if  we  were  to  take  some  one  object 
and  assume  it  to  be  stationary  when  it  was  up,  they  might  all 
seem  to  be  down,  and  when  it  was  down,  they  might  all  seem 
to  be  up.  If  we  wish  to  find  how  high  the  real  level  of  the 
water  is  under  such  circumstances,  and  what  fluctuations 
were  aciually  taking  place  in  our  assumed  standard  as  well 
as  in  the  rest,  we  could  only  learn  it  from  au  average  of  the 
elevations   and   depressions.      In   the   same  way  we   might 


24  THE  aClENCE  OF  MONEY. 

measure  one  standard  of  value  by  its  purchasing  power  or 
ratio  of  exchange  with  things  generally,  and  correct  it  by 
increased  and  decreased  supply  accordingly. 

By  referring  to  the  laws  of  value  we  find  that  the  first  or 
labor  cost  is  the  center  of  oscillation  of  values  to  which  they 
naturally  tend  in  consequence  of  increase  or  decrease  of  sup- 
ply, on  principles  already  explained, 

As,  however,  a  change  might  occur  in  the  real  level 
of  the  water;  so  in  the  matter  of  values,  there  are  changes 
in  the  values  of  all  things,  owing  to  changes  in  the 
cost  of  production,  due  to  changes  in  the  effectiveness  of 
labor.  In  the  case  of  a  single  article,  its  fall  is  noticeable  at 
once;  but  should  there  be  a  general  decline  in  the  amount  of 
labor  necessary  to  produce  all  the  articles  under  considera- 
tion, this  would  only  be  detected  in  the  increased  production 
for  a  given  amount  of  effort.  It  will  not  do  to  assume  that 
the  labor  is  more  valuable,  for  it  would  follow  that  should 
all  things  cost  little  or  no  effort,  labor  would  become  infi- 
nitely valuable.  Great  value  would  then  come  from  little  or 
no  cost.  In  any  event,  labor  amounts  to  only  the  same  sac- 
rifice to  the  laborer,  whatever  the  result  may  be;  and  this 
sacrifice  is  the  true  measure  of  the  value  of  the  result.  This 
applies  only  to  labor  generally.  Between  classes  and  indi- 
viduals, causes  having  no  bearing  upon  this  question,  ope- 
rate to  create  differences  in  the  value  of  a  day  of  labor. 

This  multiple  standard,  therefore,  would  rest  only  upon  the 
stability  of  the  mass,  whatever  that  might  be,  and  would 
cause  a  return  to  the  creditor,  at  all  times,  of  his  exact  loan 
in  merchandise  generally.  By  the  single  standard,  be  it  gold 
or  any  other  thing,  he  sometimes  gets  more  and  sometimes 
less  than  his  due.  Considering  a  fixed  amount  of  general 
merchandise  as  stable  in  value,  the  multiple  standard 
would  be  stable.  Considering  the  effort  necessary  to  its  pro- 
duction, as  the  real  standard  it  might  be  subject  to  change. 
Such  changes,  however,  could  only  come  through  increjused 
efiectiveness  of  labor  generally,  and  could  never  be  sudden  or 
violent.  While  the  lluctuations  of  a  single  standard  may  be 
liki'iied  to  the  rise  and  fall  of  a  wave  of  the  sea,  the  changes 
of  the  multiple  standard  could,  like  the  imperceptible  move- 


SCIJBNCS  OF  MEASUKEMBNTS.  25 

meuts  of  the  tides,  occur  b}-  a  rise  or  fall  of  the  mass.  We 
are  now  in  a  position  to  uutlerstand  what  would  be  a  theo- 
retically perfect  standard  of  value. 

If  we  had,  among  our  articles  of  commerce,  some  one 
possessed  of  all  the  necessary  qualities  to  fit  it  for  use  as 
currency,  and  also  costing  invariably  a  certain  amount  of 
effort  to  procure  a  certain  quantity  of  it ;  and,  moreover, 
absolutely  free  from  any  obstruction  to  its  production,  in  the 
form  of  monopoly  or  otherwise,  so  that  all  persons  in  all 
parts  of  the  country  were  free  to  produce  it,  then  we  would 
have  ideal  money  of  "intrinsic  value,"  fit  for  a  standard 
of  value  and  means  of  payment. 

The  only  other  method  would  be  to  provide  a  currency 
by  law  that  would  conform  to  these  conditions.  It  could 
become  a  perfect  standard  of  value,  because  it  could  be  made 
to  conform  to  all  the  laws  of  value.  It  would  be  desired 
because  a  currency  is  a  necessity  of  business.  It  would  cost  an 
effort  to  get  it,  and  the  amount  of  effort  being  fixed,  its  normal 
value  would  be  fixed.  Its  market  demand  would  be  irregular, 
but  as  all  could  produce  when  they  chose,  motives  of  profit 
would  promptly  induce  the  readjustment  of  supply  to  any 
change  in  demand. 

Such  a  currency  would  rest  upon  the  labor  basis,  and 
would  always  be  the  equivalent  of  a  fixed  amount  of  labor. 
A  creditor,  if  paid  in  such  a  currency,  would  always  recover 
the  products  of  a  fixed  amount  of  labor,  instead  of  a  fixed 
amount  of  merchandise  generally^  as  in  the  multiple  stand- 
ard, or  a  fixed  amount  of-  a  single  article,  as  in  the  case  of 
the  single  standard.  On  the  labor  basis  it  is  value  for  value 
without  change.  With  a  multiple  standard,  a  claim  calls 
for  value  equal  to  a  fixed  amount  of  general  merchandise. 
With  a  single  standard,  a  claim  calls  for  value  equal  to  a 
fixed  amount  of  one  thing  only. 

§17.  Summary  of  the  doctrine  of  measurement: 

All  measurements  are  comparisons  with  some  standard 
unit. 

If  the  unit  increase  or  decrease,  all  things  measured  by  it 
will  seem  to  change  inversely  as  the  unit  changes. 

Of  things  liable  to  change  it  is  impossible  to  determine 
variation  by  a  comparison  among  themselves. 


26  THE  SCIENCE  OF  MOISEY. 

Comparison  must  be  made  with  some  unchangeable  thing. 

From  among  a  number  of  articles,  all  liable  to  fluctuations, 
no  one  can  be  safely  used  as  a  staiulard.  The  only  possiljle 
standard  is  a  general  average  of  the  whole.  If  the  fluctua- 
tions of  the  mass  are  equal  in  each  direction,  the  standard 
would  be  stationary;  if  progressive,  the  standard  would  be 
so  to  the  same  extent. 

In  measuring  by  direct  comparison,  like  must  be  compared 
with  like,  feet  with  feet,  pounds  with  pounds,  etc. 

In  measuring  by  indirect  comparison,  if  any  article  have 
two  qualities  bearing  a  fixed  ratio  to  each  other,  an  article 
having  one  of  these  two  qualities,  and  not  the  other,  Avill 
serve  as  a  standard  of  all  articles  having  the  other.  This 
is  done  by  double  comparison,  the  first  being  used  as  an 
intermediate  standard.  It  is  thus  \ve  measure  the  foot  by  the 
day,  by  means  of  the  pendulum,  or  the  pound  by  the  foot 
by  means  of  water. 

If  these  two  qualities  do  not  have  a  fixed  ratio  to  each 
other  the  process  will  fail.  In  the  case  of  gold,  weight  and 
value  have  no  fixed  ratio.  Hence,  a  fixed  weight  of  gold  will 
not  serve  the  purj)Ose  of  a  standard  of  value. 


CHAPTER  III. 

DEVELOPMENT   OF    MONETARY   SYSTEMS. 

§  18.  If,  now,  our  philosophy  be  correct,  we  are  prepared 
to  examine  the  mechanism  of  moiey  as  it  is,  and  point  out 
its  defects,  and  the  proper  remedies.  We  will,  therefore, 
proceed  to  the  development  of  the  monetary  systems  in  use, 
together  witii  their  analogies,  and,  showing  their  operations, 
define  and  explain  defects  and  remedies. 

It  is  evident  that  each  department  of  production,  trans- 
portation, and  exchange,  have  passed  through  certain  pro- 
gressive stages  of  development.  Water  transportation  has 
progressed  through  the  various  forms  of  raft,  canoe,  boat, 
ship,  and  steamer.  Land  transportation  has  changed  from 
\ihe  pack:  first  on  the  back  of  man,  then  on  the  camel,  ele- 


DE  V  ELOPMENT  OF  MONETAE  Y  S  YiSTEMS.  27 

pliant,  and  horse;  then  to  the  cart,  wagon,  stage-coach,  and 
finally  to  the  railway.  The  same  is  true  of  the  arts,  manu- 
factures, and  sciences,  and  also  of  the  mechanism  of  ex- 
change, in  which  the  progress  is  indicated  by  the  various 
forms  of  barter,  double  barter,  saveral  kinds  of  legal  money, 
circulating  notes  an^  paper  money. 

In  every  case,  man  first  seizes  upon  something  already 
produced  in  his  surroundings  that  will  answer  the  purpose, 
and  afterwards  invents  more  perfect  devices,  less  '"natural," 
and  of  material  which  in  its  crude  state  would  not  answer 
the  purpose  at  all,  but  which,  by  artificial  arrangement, 
according  to  natural  laws,  serves  the  particular  purpose 
better.  It  is  thus  that  we  have  the  railway,  dispensing  alto- 
gether with  the  use  of  anim.ils,  the  primitive  or  natural 
means  of  transportation.  We  literally  use  a  "  fiat,"  or  arti- 
ficial horse,  made  of  iron,  water,  and  fire,  each  alone  possess- 
ing apparently  none  of  the  qualities  necessary  to  locomotion. 
This  analogj'',  which  is  so  complete,  leads  to  the  conclusion 
that  when  we  have  made  like  progress  in  the  department  of 
■exchange,  merchandise  will  go  out  of  use  as  money. 

Through  all  these  processes  of  development,  we  perceive 
the  operation  of  Darwin's  laws  of  selection  and  survival. 
But  it  should  be  also  observed  that  nearly  all  that  man  does 
is  for  purposes  of  gain;  and  whenever  a  man,  or  class  of 
men,  have  the  power  of  selecting  and  preserving  any  device 
or  arrangement,  it  will  be  the  one  that  will  result  in  the 
greatest  advantage  to  the  chooser,  regardless  of  its  real  merit. 
Hence  it  is  that,  while  the  mechanism  of  exchange  has  fol- 
lowed the  general  laws  of  development,  from  simple  to  com- 
plex, from  natural  to  artificial,  it  has,  under  control  of  the 
"  money  power,"  gone  from  bad  to  worse,  in  some  particu- 
lars, as  will  hereafter  appear.  Undoubtedly  that  fact,  rather 
than  inability  to  do  better,  accounts  for  the  slight  progress 
made  in  the  monetary  systems  of  the  world,  as  compared 
with  other  departments  of  trade. 

Another  reason  for  this  is,  that  the  r.^.atter  of  value  has 
been  looked  upon  as  difficult  to  understand,  and  reduce  to 
exact  science,  and  the  masses  of  the  people  have  had  little  to 
do  with  the  subject  directly,  and  seemingly  but  little  occasion 


2$  THE  SCIENCE  OF  31  ONE  Y. 

to  understand  it.  Those  who  have  been  in  power  have  found 
it  to  their  advantage  to  have  an  imperfect  system,  and  pre- 
ferred the  phm  that  would  enrich  them  the  most  rapidly, 
regardless  of  its  imperfections  or  the  injustice  done  others  by 
its  operations.  • 

§  19.  At  the  first  departure  from  the  animal  condition,  man 
began  to  avail  himself  of  tools,  and  seek  for  aid  in  his  sur- 
roundings. If  he  wished  to  move  a  thing  from  place  to  place^ 
he  carried  it  himself.  He  found,  already  provided  in  nature, 
animals  suitable  to  his  purpose,  and  placing  his  burdens 
upon  them,  he  had  natural  or  primitive  transportation.  Being 
desirous  of  exchanging  with  his  fellows,  he  first  bartered  any 
surplus  for  what  he  needed  as  best  he  could;  but,  like  the 
pack  on  his  own  back,  it  was  difficult  and  sometimes  impossi- 
ble to  move.  As  surplus  goods  accumulated,  he  found  among 
the  articles  so  collected  some  possessed  of  such  qualifications 
that,  by  common  consent,  they  became  a  sort  of  medium  of 
exchange.  In  a  primitive  state  of  society,  it  was  important 
that  the  article  should  be  of  small  bulk,  not  easily  destroyed, 
and  easily  divisible,  so  that  it  might  be  safely  accumulated, 
divided,  and  transported.  Stability  of  value  would  .not  be 
so  much  a  consideration  as  when,  after  further  development 
of  society,  a  credit  system  should  come  into  use.  Only  when 
hoarded  for  a  long  time,  would  it  be  considered  at  all,  as,  for 
immediate  use,  its  fluctuations  would  have  no  efl'ect.  In  this 
way  double  barter  came  about,  and  was  the  first  step  in  the 
development  of  the  mechanism  of  exchange.  Various  goods 
have  been  used,  such  as  gold,  silver,  iron,  nickel,  brass,  tin, 
glass,  lead,  platinum,  fish,  sealskins,  blubber,  cowry  shells, 
agate,  cornelian,  jasper,  terra  cotta,  mica,  pearl,  coal,  bone, 
calcedony,  wampum,  salt,  rice,  various  kinds  of  cloth,  corn, 
musket  balls,  tobacco,  nails,  whiskey,  various  kinds  of  cattle, 
and  even  human  beings.  So  also  have  various  animals  been 
used  for  the  purpose  of  carriage,  in  both  cases  only  those 
best  qualified  being  most  used.  Hence  we  have  in  the  one 
case,  horses,  camels,  and  elephants,  and  in  the  other,  gold  and 
silver. 

§  20.  Th(^  advantage  derived  from  the  use  of  animals  to 
transport  goods  is  simple  and  easily  understood.     Establishing 


DEVELOPMENT  OF  MONETARY  SYSTEMS.  29 

a  system  of  double  barter,  however,  is  a  new  arrangement, 
which  should  be  carefully  examined.      In  man}'  respects  it 
c         e;  resembles  the  telephone  exchange,  as  com- 

pared with  independent  private  lines.  We 
Gr^Q-)rK7^4c\^^^  have  here  two  diagrams  showing  the  dif- 
ference. Suppose  there  are  nine  men  of 
^C  various  trades  each  desirous  of  communi- 
cating with  the  others.  If  they  run  sep- 
arate and  independent  lines,  it  will  require 
TT  '  thirty-six  lines  to  effect  the  communica- 
tion. This  represents  the  barter  system. 
Now,  suppose  A  goes  out  of  his  former 
business  and  establishes  a  telephone  ex- 
change. The  second  diagram  represents 
the  result.  There  is  at  once  an  entire 
change  of  arrangement  and  twenty-eight  h« 
lines  are  dispensed  with.  All  messages 
now  pass  through  the  one  point  A, 
whereas  before  tliej^  went  direct  from 
one  to  the  other.  One  man  at  A  can  now  cut  off  all  com- 
munication, whereas  before  he  could  cut  off  none  but  hin 
own.  Before  he  was  one  amonc]  the  rest,  now  he  is  one 
between  the  rest.  He  now  no  longer  does  business  of  his 
own,  but  does  business  for  all  the  others.  There  are  no  longer 
nine  business  houses  buying  and  selling  goods,  but  eight,  and 
an  exchange  that  does  neither  except  for  repairs. 

If,  instead  of  messages,  we  have  nine  kinds  of  goods  to  be 
generally  exchanged  among  these  men,  A  having  the  gold  of 
which  he  is  manufacturing  the  usual  articles,  and  the  barter 
system  prevails,  each  of  the  others  might  want  his  gold  as 
merchandise  in  limited  quantities,  and  barter  what  they 
might  have  directly  with  him.  B  might  have  beef,  C  cloth, 
and  if  either  wanted  gold  goods,  they  would  deal  with  him, 
not  otherwise.  As  soon,  however,  as  the  double-barter  sys- 
tem prevails,  if  B  wants  cloth  of  C,  he  will  first  go  to  A  for 
gold  which  he  does  not  want,  then  to  C  for  the  cloth  he  is 
really  after.  B  might  not  want  the  cloth  at  once,  however, 
and  keep  the  gold  for  a  time. 

This  gives  a  new  use  to  gold,  and  a  new  demand;  and  as 


30  IHE  SCIENCE  OF  MONEY. 

all  the  others  would  do  likewise,  there  would  result  a  vast 
absorption  of  A's  stock  of  gold,  and  a  rise  in  its  value.  To 
what  extent  this  rise  would  be  corrected  would  depend 
entirelj^  upon  the  facility  with  which,  impelled  by  motives  o£ 
profit,  additional  supplies  of  gold  would  be  procured  to  meet 
the  increased  demand.  As  the  mines  are  in  isolated  locali- 
ties, and  more  or  less  monopolized  by  owners,  it  would  be  a 
slow  operation  if  done  at  all.  In  the  meantime,  all  stocks  of 
gold  on  hand  would  be  increased  in  value. 

If  13  has  no  beef,  but  must  have  cloth,  and  his  credit  is 
good,  he  would,  under  the  barter  system,  borrow  cloth  of  C^ 
and  pay  in  beef,  or  cloth,  as  they  might  agree,  with  usury  in 
kind.  In  the  double  barter  system,  he  might  do  the  same* 
but  would  be  more  likely  to  borrow  gold  of  A.  The  same 
would  be  true  of  all  the  others,  and  A  becomes  the  general 
creditor  as  well,  and  another  use  is  found  for  his  gold. 

Up  to  this  time,  however,  there  is  no  money.  Some  of  its 
functions  are  beginning  to  appear  in  gold;  yet  it  still  remains 
a  merchandise,  and  nothing  but  law  can  make  it  money.  All 
debts  are  still  collectable  at  law  only  in  kind,  cloth  for  cloth» 
beef  for  beef,  etc. 

§  21.  Suppose,  now,  that  this  article  is  declared  the  legal 
tender  for  debts.  Heretofore,  if  B  owed  C  for  cloth,  he 
could  give  back  what  he  got.  A  "corner"  in  gold  would 
affect  only  those  owing  gold.  With  the  gold  a  legal  tender 
for  all  debts,  this  is  changed,  and  a  "corner"  in  money  is  a 
trap  to  catch  all  debtors  in.  B  might  have  borrowed  gold 
enough  to  buy  ten  yards  of  cloth,  and  be  obliged  to  return 
enough  to  buy  twenty.  C  might  owe  for  one  cow,  and  be 
obliged  to  give  gold  enough  to  buy  two.  Just  as  in  the  tele- 
phone exchange,  by  change  of  arrangement  and  a  reduction 
of  lines,  A  can  now  cut  off  all  communication  between  the 
others;  now  in  possessi(m  of  the  one  thing  that  will  pay 
all  debts,  ho  has  a  like  advantage  by  virtue  of  his  kind  of 
merchandise  being  made  into  money.  In  the  barter  system 
of  payment,  if  each  of  the  nine  men  owed  each,  of  the  others, 
A  would  owe  gold,  B  beef,  C  clo 'i,  and  so  on.  Only  one- 
iiintli  of  the  debts  would  be  payable  in  gold,  eight-ninths  in 
the  other  eight  articles.     Under  the  legal  tender  system  of 


DEVELOPMENT  OF  MONETARY  SYSTEMS.  31 

payiug  debt,  although  the  loans  Avere  originully  made  in  a 
variety  of  goods,  they  would  be  all  piyable  in  gold,  and,  upon 
general  settlement,  nine  times  as  much  gold  would  be  needed. 
B  cannot  pay  beef,  nor  C  cloth,  but  each  must  have  A's  gold. 
The  result  is  that  the  gold  advances,  and  all  the  rest  fall,  and 
A  is  greatly  enriched  through  no  merit  of  his  ow.,.  The 
value  of  gold  is  assumed  to  be  stationary,  and  when  it  doubles 
in  value,  all  contracts  to  paj'  are  doubled.  It  is  at  once  trans- 
ferred to  the  other  end  of  the  balance,  and  its  movements 
are  the  reverse  of  the  movements  of  ail  other  articles,  rising 
when  they  fall,  and  falling  when  they  rise.  This  cannot  be 
-without  the  legal  tender  law. 

We  have  now  imparted  to  this  one  article  of  merchandise 
a  legal  function  which  it  did  not  possess,  and  coald  not 
acquire  except  by  law,  viz.,  to  pay  debts  contracted  for  any 
of  the  others,  in  consequence  of  which  its  holder  has  certain 
advantages.  This  is  the  inception  of  the  money  power  which 
will  develop  into  gigantic  proportions  as  we  proceed. 

§  23.  It  was  found,  in  the  case  of  transportation,  that 
wheels  would  do  as  well  as  animals  to  support  a  load,  but 
that  no  transportation  could  be  accomplished  with  them 
alone,  and  invention  said  ''combine."  The  cart  or  the  wagon 
combhied  with  the  animal  gave  added  power,  the  cart  fur- 
nishing the  sustaining  element,  and  the  animal  the  loco- 
motion. In  like  manner  the  circulating  note  serves  to 
perform  tha  function  of  a  currency,  the  legal  tender  coin  being 
a  final  means  of  payment.  It  was  also  found  that  the 
locomotive  function  of  the  horse  could  be  transferred  to  the 
wagon,  and  this  being  done  resulted  in  ihefiat  horse,  or  loco- 
motive. The  function  of  legal  tender  can  also  be  transferred 
to  the  note,  resulting  in  paper  money.  There  is  as  great  a 
difference  between  a  circulating  note  and  legal  tender  paper 
money  as  between  a  locomotive,  and  a  cart  without  a  horse. 
These  combinations  required  conditions  to  correspond,  and 
nature  was  made  artiiicial  by  the  construction  of  roads. 
Wa'yons  without  roads  would  be  useless,  and  a  locomotive  off 
the  track  as  helple.-^s  as  a  dead  mouse.  So,  also,  money,  to 
succeed,  requires  that  certain  conditions  should  be  strictly 
observed. 


32  THE  iiCIENCE  OF  MONEY. 

§23.  lu  the  case  of  A's  gold,  if  a  (luantity  of  10,000 
pounds  had  absorbed  into  money,  and  10,000  pounds  only 
remained  as  mercliaudise,  it  is  evident  that,  as  a  supply  for 
manufacturing  purposes,  there  might  as  well  be  but  one-half 
the  gold  in  the  community'.  As  long  as  it  performs  the 
functions  of  money  it  is  useless  as  merchandise.  It  is  so 
much  raw  material  consumed  in  the  manufacture  of  money, 
and  can  only  be  recovered  as  merchandise  by  destroying  its 
character  as  money,  thus  destroying  its  legal  power  to  pay 
debt.  It  might  now  occur  that  other  products  would  outstrip 
that  of  gold  in  relative  quantity,  in  which  case  there  would 
be  an  increase  in  its  value,  which  might  not,  owing  to  the 
obstructions  in  the  way  of  its  free  production,  induce  the 
requisite  addition  to  the  supply.  There  would  be  a  permanent 
addition  to  the  profits  of  those  already  in  the  business  of 
producing  gold,  which  would  be  the  exact  margin  of  vacuum 
that  could  be  successfully  filled  by  a  circulating  note  accord- 
ing to  the  principles  already  mentioned. 

It  was  soon  understood  that  money,  or  the  medium  of 
exchange,  need  not  be  merchandise  of  the  value  of  that  ex- 
changed aay  more  than  a  cart  need  be  of  the  weight  or  value 
of  the  goods  transported  bj'  it,  and  substitutes  of  various 
kinds  came  into  use.  These  are  divisible  into  two  distinct 
classes — Government  and  bank  issues.  As  will  hereafter  be 
shown,  there  is  always  a  great  gain  to  the  issuer  of  currencj', 
and  there  has  been  more  or  less  contention  between  the  Gov- 
ernment and  the  banks  for  the  exercise  of  this  power.  A 
contest  of  this  kind,  of  greater  magnitude  than  ever  before 
seen,  is  now  imminent  in  this  country. 


CHAPTER   IV. 

PUBLIC   VS.    PRIVATE   CURREN"CT. 

§24.  Let  us  examine  carefully  both  classes  of  currency,  and 
their  effects,  and  how  they  operate. 

A's  gold  was  brought  into  use  as  a  medium  of  excliange  by 
double  barter,  and  then  by  law  was  made  the  legal  standard 


PUBLIC   VS.  PRIVATE  CURRENCY.  ^3 

of  value,  and  a  lawful  payment  of  all  debts.  It  thus  acquired 
the  full  functions  of  money,  viz. :  currency,  standard  of  value, 
and  legal  tender.  The  latter  function  is  entirely  dependent 
upon  the  law,  it  being  in  no  manner  capable  of  creating 
itself. 

It  is  the  function  of  government  to  make  all  legal  tender 
money,  not  particularly  because  it  can  so  guarantee  the 
purity  of  the  coins,  as  some  suppose,  but  because  by  the  act 
of  coining  a  legal  quality  is  imparted,  and  none  but  the  law 
making  power  of  the  country  is  competent  to  impart  this 
legal  quality.  To  allow  an  individual  to  do  this  is  to  invest 
him  with  one  of  the  prerogatives  of  sovereignty. 

It  is  also  one  of  the  duties  of  government  to  establish 
justice,  and  equitably  enforce  contracts.  Hence,  when,  in 
order  to  "promote  the  general  welfare,"  government  supplies 
a  standard  and  legal  tender,  it  ought  to  see  that  contracts  to 
pay  this  legal  tender  are  equitably  fulfilled.  As  we  have 
seen,  a  change  in  the  value  of  the  unit  changes  the  contract. 
Now,  if  the  same  power  that  coins  money  does  not  regulate 
the  value  thereof,  it  becomes  a  party  to  fraud,  and  by  neglect 
establishes  injustice. 

To  "  coin  monej'  and  regulate  the  value  thereof,"  expresses 
the  entire  functions  of  the  Government  with  regard  to  money, 
and  the  exercise  of  the  former  power  might  as  well  be  dele- 
gated to  individuals  as  the  latter.  In  fact,  it  were  better  to 
■delegate  the  former  power  than  the  latter,  for  if  the  value 
be  regular  no  man  could  be  wronged  by  change  of  contract, 
and  if  merchandise  to  full  value  represented  were  put  into 
the  coins,  no  gain  would  accrue  to  the  coiner.  Hence,  the 
coinage  of  such  money  is  of  but  little  moment.  The  gain, 
unless  by  counterfeiting,  comes  entirely  by  substituting  the 
legal  functions,  in  part  or  in  whole,  for  the  merchandise  on 
the  one  hand,  or  the  note  or  confidence  element  on  the  other. 

If  the  Grovernment  receives  and  coins  gold,  and  returns  it 
all  to  the  owner  without  charge  or  signorage,  the  raw 
material,  "bullion,"  and  the  manufactured  article,  "money," 
will  correspond  in  value,  as  no  added  cost  has  raised  its  value, 
no  subtracted  bullion  has  lowered  it.  If,  now,  the  Govern- 
ment takes  out  a  part  of  the  gold  and  substitutes  alloy,  say 

3 


3^.  THE  SCIENCE  OF  MONEY. 

10  per  cent.,  hoarding  the  bullion  and  keeping  it  entirely  out 
of  the  market,  either  as  money  or  bullion,  the  coins  would 
have,  as  money,  the  same  value  as  before,  but  10  per  cent. 
less  value  as  merchandise.  The  same  would  hold  good  for 
any  other  per  cent,  up  to  100,  in  which  case  it  is  all  alloy,  or 
paper  for  metal.  But  if  the  metal  so  retained  be  put  out  by 
the  Government  either  as  coin  or  bullion,  it  at  once  reduces 
the  value  of  the  metal  in  both  forms,  as  the  10  per  cent,  of 
alloy  is  so  much  added  supply  of  money,  the  same  as  though 
it  were  gold. 

If  the  Government  should  retain  all  the  gold,  and  give  a 
legal  paper  substitute,  it  would  have  the  same  utility  as  a 
debt  payer  to  render  it  desirable.  Being  desirable,  men 
would  consider  it  valuable.  If  the  supply  was  limited  to  the 
gold  offered,  it  would  have  exactly  the  value  of  such  gold  at 
all  times;  for,  rising  above,  more  gold  would  flow  in,  falling 
below,  gold  would  not  be  offered.  This  is  the  only  specie 
basis  plan  proper  for  governments  to  adopt.  Such  was  the 
Venetian  system,  in  successful  operation  for  iGO  years,  over- 
thrown at  last  only  by  conquest. 

Governments  have  coined  such  money  at  various  times. 
When  cattle  were  used  as  money  in  Rome,  copper  cattle 
were  coined.  Leather  and  parchment  money  was  made  in 
Carthage.  Iron,  over-valued,  was  coined  in  Sparta.  Paste- 
board money  was  used  in  Holland.  Assignats,  or  land  cer- 
tificates, were  current  in  France;  and.  Continental  money 
was  issued  in  America.  The  legal  tender  of  more  recent 
date,  is  another  illustration  of  the  same  kind  of  money.. 
Except  in  the  case  of  the  Venetians,  however,  no  scientific 
system  of  regulating  the  value  by  regulating  the  supply  of 
such  money  was  adopted.  Being  easily  over-supplied,  it 
failed  to  maintain  its  value,  and  was  supplanted  by  money  of 
merchandise.  It  may  be  argued  that  by  issuing  representa- 
tive money,  something  for  nothing  is  obtained  on  the  part  of 
the  Government,  and  is  wrong.  Let  us  examine  the  matter 
more  closely.  If  A  gives  to  the  Government  gold  to  the 
value  of  the  coin  he  receives  from  the  mint,  he  will  only  do 
so  because  he  wants  gold  as  money  instead  of  merchandise. 
It  ceases  to  be  merchandise  to  all  intents  and  purposes  from 


PUBLIC  VS.  PRIVATE  CURRENCY,  35 

the  time  it  is  coined.  There  is  no  possible  way  in  which  it 
can  enter  into  watches  or  jewelry,  or  any  other  form  of 
goods.  It  is  totally  excluded  from  the  property  list  of  the 
community,  and  might  as  well  be  m  the  bottom  of  the 
ocean.  So  long  as  it  remains  money  it  is  put  into  circulation, 
and  each  in  turn  has  so  much  useless  property  on  his  hands 
as  a  ticket  or  counter,  till  it  performs  a  circuit,  and  passes 
into  the  hands  of  the  Government  as  taxes,  or  is  consumed 
in  the  arts  or  manufactory. 

Suppose,  instead,  A  receives  the  paper,  and  the  Grovern- 
ment  exports  the  gold,  and  procures  guns  or  other  supplies. 
The  gold  is  not  excluded  as  valuable  merchandise  as  before; 
and  although  the  Government  gains  the  use  of  the  gold 
while  the  paper  circulates.  A,  the  holder  of  the  paper,  loses 
only  the  privilege  of  holding  utterly  useless  property,  as  a 
sort  of  security  to  fall  back  on,  if  money  should  no  longer  be 
wanted.  In  consideration  of  this,  these  same  men  being  a 
part  of  the  people  who  pay  taxes  to  support  the  Government, 
would  be  relieved  by  just  the  amount  gained  by  the  Govern- 
ment in  the  operation.  This  is  also  true,  even  if  in  the  end 
the  paper  should  become  worthless.  There  is  a  gain,  and  no 
loss  to  any  one,  as  long  as  the  paper  circulates,  and  that  gain 
to  the  only  power  that  can  furnish  the  legal  functions  of 
money,  and  to  the  only  power  entitled  to  it. 

There  seems  to  be  an  act  of  repudiation  in  this  paper 
money  put  in  permanent  circulation  by  the  Government.  If 
A  furnishes  gold,  or  B  beef,  or  C  cloth  to  the  Government, 
and  receives  paper  money,  he  parts  with  merchandise  and 
receives  a  ticket  or  counter  containing  no  merchandise,  but 
possessing  the  power  to  cancel  debt  to  the  extent  of  the 
value  parted  with.  He  buys  of  the  grocer,  and  then  he  is 
paid  for  his  gold,  beef,  or  cloth.  The  grocer  buys  of  the 
wholesaler,  and  the  wholesaler  of  the  jobber,  and  the  jobber 
of  the  importer,  and  the  importer  pays  it  to  the  Government 
as  duties  or  taxes.  It  may  perform  any  other  circuit,  and 
each  gets  his  pay  when  he  parts  with  his  i^ouey,  instead  of 
when  he  receives  it.  Actual  pay  would  be  absolutely  useless 
except  as  security.  In  the  end  nothing  is  repudiated,  for 
each  and  every  one  is  paid  when  he  parts  with  his  money. 


M  THE  SCIENCE  OF  MONET. 

It  is  clainied  that  such  money  becomes  worthless  because 
it  has  no  intrinsic  vahie.  Its  value  depends  upon  precisely 
the  same  principles  that  govern  other  values.  It  is  a  business 
maxim  that  "'  there  is  nothing  so  certain  as  death  and  the 
taxes."  This  currency  would  pay  taxes,  and  would  have 
utility.  Having  utility,  it  would  be  desired,  and,  being 
limited  in  supply,  it  would  be  valuable  according  to  the  lim- 
itation. 

It  must  also  be  borne  in  mind  that  the  Government  is  the 
people — at  least  in  a  republic — and  our  premises  will  not  con- 
form to  the  facts,  if  we  consider  it  an  individual  outside  and 
independent  of  the  rest,  or  an  individual  among  the  rest,  whose 
gain  is  their  loss.  Anything  saved  to  the  public  treasury  is 
saved  to  the  whole  people,  anything  gained  by  the  treasury  is 
gained  by  the  whole  people. 

§  25.  Such  is  not  the  case  with  a  bank,  however.  That  is 
individual,  and  special  in  its  character,  and  operated  for  private 
gain,  like  any  other  business.  Any  gain  to  it  is  not  a  gain  to 
the  balance  of  the  coijim unity. 

Let  us  now  observe  the  operation  of  a  bank  note  currency. 
Up  to  this  point,  whether  the  money  received  from  the  Gov- 
ernment was  ''intrinsic**  or  not;  if  A  wanted  money  it  cost 
him  the  value  represented,  and  if  he  bought  or  loaned,  he 
could  not  buy  or  loan  beyond  his  money  without  becoming  a 
borrower.  We  have  seen  that  substitutes  aifect  the  value  of 
the  principal,  and  as  the  Government  furnisher]  all  the  money 
and  substitutes,  it  could  control  the  value  of  mone3\  Let  it 
charter  a  bank,  however,  and  give  A  the  right  to  issue  circu- 
lating notes,  and  it  loses  its  power  over  the  value  of  money. 
It  may  compel  A  to  convert  his  notes  into  coin  on  demand, 
and  upon  the  theory  that  "things  that  exchange  for  each 
other  are  of  equal  value,"  it  may  keep  these  circulating  notes 
at  par  with  coin.  This,  however,  is  a  fallacy  of  simple  enum- 
eration, for  although  true  it  does  not  follow  that  both  will 
not  change  in  their  value  with  regard  to  ether  things.  That 
they  do  so  will  be  shown  hereafter. 

The  privilege  having  been  granted  to  A  to  issue  circu- 
lating notes,  another  step  is  taken  in  the  development  of  the 
''  money  power."     He  is  now  enabled,  to  a  great  extent,  to 


PUBLIC  VS.  PRIVATE  CURRENCY.  37 

exercise  the  most  important  function  of  government  with 
regard  to  money,  viz. :  within  certain  limits  to  regulate  its 
value.  He  can  also  play  a  "  confidence  game  "  on  the  com- 
munity. If  B  wants  C's  cloth,  he  goes  to  A  to  borrow 
money,  and  is  offered  the  hank  note.  It  being  a  new  arrange- 
ment, he  objects;  but  seeing  the  ''  basis  "  on  hand  ready  to  be 
paid  and  wanting  only  cloth,  he  concludes  to  take  the  note 
if  C  will  take  it  as  money  and  let  him  have  the  goods.  The 
only  thing  of  value  loaned  is  the  cloth,  and  C  is  the  real 
lender.  A  and  B  have  but  exchanged  notes.  A  owes  C 
for  the  cloth  and  pays  no  interest,  while  B  gives  A  his  note 
for  the  cloth  borrowed  from  C,  and  pays  interest  to  the  wrong 
man.  By  this  arrangement,  C,  the  real  lender,  gets  no 
interest,  while  A,  the  real  borrower,  draws  interest  on  what 
he  owes  to  C.  The  bank  note,  although  not  a  legal  tender, 
is  not  indorsed  by  B,  and  if  A  does  not  pay,C  cannot  hold 
B.  This  is  necessary  to  enable  it  to  become  a  sort  of  "pseudo" 
money. 

It  may  be  objected  that  A  has  actually  loaned  his  "  basis," 
and  it  is  merely  left  in  the  bank  vaults  until  wanted.  Very 
well,  if  that  be  true,  A  should  be  allowed  to  issue  but  one 
dollar  of  note  to  one  of  coin;  Such,  however,  is  not  the  case, 
for  the  next  borrower  is  shown  the  same  basis,  and  so  on 
indefinitely,  until  the  whole  fraud  collapses  by  a  panic,  of 
which  more  anon. 

It  will  be  observed  that  while  the  bankers'  notes  are  out, 
they  operate  as  real  capital  to  him,  and  he  gains  the  same  as 
the  Government  would  by  the  issue  of  paper  money.  This 
gain,  however,  instead  of  being  from  the  community  to  the 
community,  is  now  from  the  community  to  the  bank.  The 
consideration  in  the  case  of  the  government  issue  is  the  legal 
qualities  of  money  in  the  paper,  in  the  latter  case  merely 
confidence.  A  sad  confidence  game  it  has  always  been  to 
the  users  of  such  paper. 

§  26.  There  have  been  also  various  syt^ms  adopted,  com- 
posed of  the  government  and  bank  systems  more  or  less 
combined.  This  is  the  case  with  the  Bank  of  England,  the 
Bank  of  France,  and  the  present  National  Banks  of  this 
country.     It  will  be  observed  that  in  all  of  them  the  bank 


38  THE  SCIENCE  OF  MONET. 

contrives  to  retain  more  or  less  of  the  power  to  resfulate  the 
issue,  and  generally  it  secures  all  the  profit,  while  the  Gov- 
ernment abandons  its  control  over  the  value  of  money  more 
or  less,  and  usually  furnishes  about  all  the  credit  and  security. 
In  this  way  the  "Money  Power"  has  contrived  to  become 
almost  a  part  of  the  Government  itself. 

§  27.  Animals,  in  carrying  packs,  performed  both  of  the 
functions  of  transportation — support  and  locomotion.  After- 
ward by  combination  of  animal  and  cart,  or  wagon,  the 
function  of  support  was  transferred  to  the  cart.  We  find  the 
same  thing  in  the  case  of  the  bank  note  currency,  attempted 
with  imperfect  success,  the  function  of  currency  being  given 
to  paper,  and  the  function  of  standard  and  payment  being 
left  to  the  basis.  Each  required  a  certain  stability  and  degree 
of  civilization.  Certain  conditions  must  be  maintained. 
Roads  in  the  one  case  and  confidence  in  the  other,  and  when 
the  bottom  fell  out  of  either  they  failed. 

The  analogy  is  completed  when  we  compare  the  Govern- 
ment issue  of  paper  money  and  the  railway.  In  the  case  of 
the  paper  money  its  cost  of  production  is  no  longer  the 
restraint  upon  supply,  and  therefore  ceases  to  operate  as  a 
regulator  of  value,  and  it  must  depend  entirely  upon  a  direct 
regulation  of  the  supply.  So  the  conditions  would  be  differ- 
ent, the  system  of  regulation  being  essential.  In  the  case  of 
the  railway  the  track  becomes  a  necessity,  and  its  proper  care 
and  maintenance  a  condition  of  success.  An  unlimited  issue 
makes  paper  money  worthless,  and  the  iron  horse  off  the 
track  is  good  for  nothing  as  a  locomotive. 

Of  course,  stage-coach  owners  and  horsemen  would  oppose 
railroads.  So  bank  men  would  oppose  Government  paper. 
Stages  and  horses  never  conferred  a  usurped  power,  while  a 
bank  of  issue  does,  and  exclusive  government  issue  restores 
these  powers  to  the  Government  "to  which  they  rightfully 
belong." 

In  the  bank  S3'§tem,  paper  exercises  the  function  of  cur- 
rency, and  the  basis  that  of  standard  and  pa^auent.  A  prop- 
erly regulated  government  paper  money  would  remove  all 
these  functions  to  the  paper  on  scientific  principles.  Those 
ignorant  of  its  principles,  or  opposed  to  its  being  done,  say 


PUBLIC  VS.  PRIVATE  CURRENCY.  39 

tliat  it  cannot  be  done,  just  as  those  opposed  to  railroads  said 
that  the  function  of  tlie  horse  could  not  be  transferred  to  the 
cart.  It  is  needless  to  carry  the  analogy  farther.  The  fol- 
lowing saying  from  Confucius  is  appropriate  and  suggestive: 
"  If,  on  presenting  one  corner  of  a  truth,  the  hearer  cannot 
determine  from  it  tbe  other  three,  I  do  not  repeat  the  les- 
son." John  Stuart  Mill  sets  forth  clearly  the  principles 
upon  which  paper  money  operates: 

*  It  seems  to  be  an  essential  part  of  the  idea  of  money  that  it  be 
a  legal  tender.  An  inconvertiljle  paper  whicli  is  legal  tender,  is 
universally  admitted  to  be  money.  *  *  *  *  x.uA  such  is  the 
influence  of  almost  all  estal.)lished  governments,  that  they  have 
generally  succeeded  in  attaining  this  object.  I  believe  I  might  say 
they  have  always  succeeded  for  a  time,  and  the  power  has  only 
been  lost  to  them  after  they  had  compromised  it  by  the  most  fla- 
grant abuse. 

In  the  case  supposed  the  functions  of  money  are  performed  by  a 
thing  which  derives  its  power  of  performing  tliem  solely  from 
convention ;  but  convention  is  quite  sufficient  to  confer  the  power, 
since  nothing  more  is  needful  to  make  a  person  accept  anything 
as  money  and  even  at  an  arbitrary  value,  than  the  persuasion  that 
it  will  be  taken  from  him  on  the  same  terms  by  others. 

The  only  question  is,  what  determines  the  value  of  such  a  cur- 
rency ?  since  it  cannot  be,  as  in  the  case  of  gold  and  silver  or  paper 
exchangeable  for  them  the  cost  of  production.  We  have  seen, 
however,  that  even  in  the  case  of  metallic  currency  the  immediate 
agency  in  determining  its  value  is  its  quantity.  If  the  quantity, 
instead  of  depending  on  the  ordinary  motives  of  profit  and  loss, 
could  be  arbitrarily  rixed  by  authorit3%  the  value  would  depend 
upon  the  fiat  of  that  authority— not  on  cost  of  production.  The 
quantity  of  paper  currency  not  convertible  into  the  metals  at  the 
option  of  the  holder,  can  be  arbitrarily  fixed,  especially  if  the 
issuer  is  the  sovereign  power  of  the  state.  The  value  of  such  a 
currency  is  entirely  arbitrary. 

As  value  depends  upon  a  "tension"  between  suppl}- and 
demand,  and  the  demand  for  money  fluctuates  constantly,  a 
fixed  supply  could  not  answer  the  purpose.  It  must  be  a 
fixed  ratio  of  supply  to  demand.  How  to  do  this  remains  to 
be  seen.  All  authorities,  from  Aristotle  down  to  the  present 
time,  concede  the  rest  substantial!}^  as  it  is  here  stated. 

*  Mill's  Principles  of  Political  Economy,  p.  327. 


40  THE  SCIENCE  OF  MONEJ. 

CHAPTER  V. 

PANICS. 

§  28.  We  now  come  to  consider  the  operation  of  a  bank 
note  currency  with  regard  to  the  value  of  money,  and  as  a 
producer  of  panics.  A  bank  issue  aifects  the  value  of  the 
base  or  coin  upon  which  it  rests,  and  it  naturally  and  neces- 
sarily runs  through  the  process,  first,  of  inflation  and  depre- 
ciation of  both  coin  and  paper,  and,  second,  of  panic  and 
rapid  appreciation  of  both,  during  which  the  value  of  con- 
tracts to  pay  money  are  changed. 

It  is  claimed,  on  the  other  hand,  that  the  convertibility  of 
paper  into  coin  prevents  any  depreciation,  and  that  panics 
and  revulsions  are  the  result  of  over  trading,  over  production, 
and  speculation.  This  question  is  important,  as  upon  it  rests 
the  charge  that  banks  exercise  the  Government  function  of 
regulating  the  value  of  money. 

Let  us  refer  to  our  diagram  of  the  double  barter 
A  represents  the  class  of  men  who  fur- 
nish the  currency.  Before  the  bank  note 
is  issued,  this  would  be  some  form  of 
merchandise,  usually  gold  or  silver.  Let 
B  represent  the  class  who  furnish  the  H« 
beef,  C  the  cloth.  According  to  the 
principles  of  value,  money,  beef,  and 
cloth  would  be  regulated  in  value  by  the 
laws  of  supply  and  demand.  The  theory 
allowed  to  furnish  a  substitute  for  coin,  and  does  so  in  excess 
of  the  amount  of  coin  that  would  be  forthcoming  in  the 
usual  way,  the  excess  would  at  once  be  presented  for  conver- 
sion into  coin.  If  currency  is  inflated  10  per  cent.,  it  would 
fall  to  90;  and  the  cost  of  procuring  gold  from  the  mines  be- 
ing 100,  it  would  be  worth  more  as  bullion  than  as  money. 
This  would  result  in  a  disappearance  of  A's  coin,  which  Avould 
warn  him  to  desist.  We  have  seen  that  this  rule  holds  good 
only  in  the  absence  of  monopoly  in  any  form. 

In  changing  from  single  to  double  barter,  and  from  double 
barter  to  legal  tender,  new  uses  were  found  for  gold  of  a 


PANICS.  « 

nature  to  add  greatly  to  the  demand.  Now,  if  it  was  not 
true  that  new  supplies  could  be  promptly  brought  forward, 
there  would  be  a  monopoly  margin  to  fall  on  when  bank 
notes  are  issued.  The  facts  are  that  gold  hunting  has  always 
been,  and  now  is,  more  of  an  adventure  than  of  a  legitimate 
business;  and  gold  mines  are  not  where  the  population  is 
dense,  and  are  not  easily  accessible  to  producers.  It  is  not 
therefore,  probable  that  any  such  readjustment  would  quickly 
occur.  A  sudden  rise  in  beef  would  expose  its  producers  to 
the  competition  of  all  the  farmers  of  the  country^  and  a  new 
supply  could  be  quickl}"  had  to  meet  the  rise.  Again,  for- 
eign nations  with  which  we  have  commerce  might  be  cheap- 
ening gold  in  like  manner,  and,  if  so,  there  would  be  no 
inducement  to  export  it  on  account  of  its  superior  value 
abroad.  Even  when  exportation  does  take  place,  it  does  not 
at  once  follow  inflation.  Prices  must  rise  first,  the  balance 
of  trade  must  turn,  and  foreign  balances  become  due  before 
any  drain  of  coin  to  settle  the  balances  will  occur.  This 
will  be  some  months,  at  least,  and  possibly  years  after  the 
inflation  takes  place. 

During  inflation,  gold  is  not  likely  to  disappear  by  hoard- 
ing. On  the  contrary,  however,  as  soon  as  it  begins  to  fall, 
hoards  will  be  brought  into  market  and  exchanged  for  prop- 
erty which  appears  to  be  rising.  Importers  would  then  be 
supplied,  and  the  banks  would  be  furnished  with  reserves.  If 
each  of  these  nine  men  had  a  like  share  of  the  gold  at  the 
outset,  A  would  have  one-ninth  of  what  was  possessed  by  the 
entire  community.  But  as  his  notes  began  to  circulate,  they 
would  displace  the  gold,  and  it  would  come  into  his  hands 
for  deposit  until  he  might  have  20,  30,  40,  or  50  per  cent,  of 
the  whole.  As  from  three  to  five  dollars  of  notes  to  one  of 
coin  is  considered  safe,  he  would  push  his  issues  to  the  utmost 
limit.  In  this  way  the  inflation  would  go  on,  the  community 
having  less  hoarded  gold,  the  bank  more,  and  prices  would 
gradually  rise  as  the  gold  and  paper  both  fall  in  value.  In 
the  meantime,  B  might,  on  the  strength  of  this  bank  note 
currency,  involve  himself  in  debt  to  C  for  cloth,  payable  at 
bank  in  money,  and  others  in  the  same  manner  become  in- 
debted.    This  use  of  credit  helps  to  add  to  the  demand  for 


42  THE  SCIENCE  OB'  MONEY. 

goods,  and  aids  the  rise  in  prices.  This  rise,  however,  can 
only  be  maintained  by  added  inflation  of  cnrrency  from  the 
bank.  Suppose  this  has  gone  on  until  there  has  been  a  rise 
of  25  per  cent,  in  prices,  equivalent  to  a  fall  of  20  per  cent,  in 
the  value  of  money.  If  a  j^anic  now  starts  in  a  foreign 
country,  gold  would  rise  and  merchandise  fall  abroad,  when 
gold  would  be  exported  instead  of  goods.  Our  goods  would 
then  fall,  and  gold  rise. 

Suppose  our  crop  of  exportables  were  short,  and,  therefore, 
scarce  and  dear.  Gold  would  be  wanted  instead,  as  it  would 
be  the  cheapest.  Business  would  not  lag,  and  money  would 
circulate  freely,  but  the  basis  in  the  bank  would  slip  away, 
and  the  credit  of  the  bank  being  shaken,  a  run  would  occur. 
Then,  to  save  itself,  the  bank  would  rapidly  contract  its 
issues.  Suppose  the  rise  in  coin  at  the  outset  to  be  but  5 
per  cent.  It  would  seem  that  a  contraction  of  the  currency 
so  as  to  raise  the  value  5  per  cent,  would  ))e  sufficient  to 
allay  the  panic.  But  while  this  5  per  cent,  rise  is  going 
-on,  hoarding  adds  to  the  trouble,  and  some  of  the  gold  dis- 
appears from  the  inarket  in  that  way.  The  bank  must  have 
coin  to  strengthen  its  reserves,  and  it  becomes  a  buyer  and 
hoarder  of  gold,  causing  a  still  further  advance  in  its  value. 
This  continues  until  a  foreign  supply  can  be  had^  which 
must  be  paid  for  in  exports  drawn  from  a  community  in 
which  shortage  of  exports  was  the  first  cause  of  the  trouble. 
Or,  if  a  foreign  panic  was  the  cau!=e,  we  could  only  get  the 
coin  by  underselling  bankrupts,  and  each  would  endeavor  to 
underbid  the  other  to  get  the  gold. 

The  distress,  bankruptcy,  and  ruin,  in  consequence,  is  some- 
thing appalling;  for.  as  has  been  shown  in  tlie  horse  and 
wheat  game  in  Chapter  II.,  although  B  may  have  borrowed 
but  money  enough  to  buy  one  cow,  he  may  now  have  to  give 
two  or  three  cows  to  get  a  like  number  of  dollars.  These 
dollars  contain,  of  course,  the  same  amount  of  metal,  but  are 
two  or  three  times  as  valuable  as  before. 

In  the  meantime,  what  lias  the  Government  been  doin"-  in 
the  way  of  "establishing  justice"  and  "promoting  the  gen- 
eral welfare,"  or  in  regulating  the  value  of  money  ?  It  has 
been  promoting  the  general  ruin,  and   aiding  and  abettin"- 


PANICS.  43 

injustice  by  chartering  banks  to  disturb  the  value  of  money, 
and  so  changing  all  contracts  to  pay  it.  It  can  easily  be  seen 
how  the  initiated  could,  while  this  was  going  on,  reap  a  rich 
harvest.  They  could  owe  during  inflation,  and  beat  their 
creditors;  and  be  creditors  during  the  contraction,  and  rob  their 
debtors.  While  prices  are  all  down,  and  the  country  is  being 
wrecked  and  plundered  by  financial  pirates,  gold  will  have  a 
high  value.  When  confidence  is  restored,  inflation  com- 
mences again,  only  to  repeat  the  process. 

This  operation  of  inflation  and  the  first  step  of  the  panic — 
the  slipping  away  of  the  bank  reserves — goes  on  very  quietly. 
The  first  startling  crash  is  usually  some  large  business  failure; 
from  this  comes  the  cry  of  over  trading.  Then  the  bank,  to 
save  itself,  refuses  loans  and  discounts  to  those  who  are 
accustomed  to  receive  them.  This  withholding  of  funds,  at 
a  time  when  stagnant  business  renders  them  most  needful, 
precipitates  still  further  failures.  This  forces  goods  upon 
an  already  overloaded  market.  All  want  to  sell,  and  few 
wish  to  buy,  and  the  superficial  say,  "  overxn'oduction," 
when  the  real  trouble  is  under-consumption ;  for  the  fright 
and  enforced  settlement  induces  economy  among  consumers 
When  prices  are  likely  to  advance,  goods  are  largely  bought 
on  speculation;  when  likely  to  fall,  shrewd  men  unload. 
This  enhances  the  fluctuation  of  prices.  To  what  extent 
this  inflation  and  depreciation  can  go  before  the  outflow  of  the 
basis  checks  it  with  a  panic,  and  to  what  extent  the  contrac- 
tion must  be  carried  on  to  cause  an  influx  of  metal  money, 
will  depend  upon  the  circumstances  of  the  case.  The  infla- 
tion or  contraction  might  be  more  at  one  time  and  less  at 
another.  What  they  have  been  at  certain  times  will  appear 
by  a  reference  to  the  diagram. 

§  29.  The  fallac}"  of  the  specie  basis  d(>ctrine  consists  in 
assumin;y  too  much  stability  for  gold,  and  omitting  to  recog- 
nize that  it  is  subject  to  all  the  laws  and  circumstances  of 
value  that  apply  to  other  merchandise.  It  also  consists  in 
assuming  what  is  not  true,  that  gold  always  flows  freely 
from  one  country  to  another  whenever  there  is  any  dUference 
in  its  value  in  the  two.  In  his  "  Wealth  of  Nations,"  page 
178,  Adam  Smith  says: 

"  In  China,  and  the  greater  part  of  the  other  markets  of  India, 


44  THE  SCIENCE  OF  MONEY. 

the  proportion  between  fine  silver  and  fine  gold  is  but  as  ten,  or, 
at  most,  twelve  to  one.  whereas  in  England  it  is  as  fourteen  or 
fifteen  to  one."' 

This  could  not  1)6  the  case  if  the  assumption  were  true- 
Silver  would  at  ouce  be  sent  from  En2:laud  to  China  and 
India,  in  exchange  for  gold,  until  the  ratio  should  become 
alike  in  both  places. 

Regulating  the  value  of  paper  by  convertibility  is  like 
regulating  the  speed  of  a  steam  engine  by  a  governor  so  un- 
certain in  ios  action  as  to  allow  the  speed  to  greatly  increase, 
and  again  greatly  decrease,  before  operating,  and  to  generally 
oscillate  from  one  extreme  to  the  other.  Such  a  device  in 
mechanics  would  not  be  tolerated;  the  world  has  made  too 
much  progress  in  that  direction. 

§  30.  There  is  a  theory  very  popular  with  some,  that  if  the 
bank  discount  only  bills  drawn  against  articles  of  consump- 
tion, actually  in  the  market,  no  inflation  will  occur.  It  is 
stated  as  follows:  Suppose  C  ships  |1,000  worth  of  cloth 
to  J,  a  jobber,  and,  drawing  a  ])ill,  discounts  it  at  A's  bank. 
He  then  pays  D,  E,  F,  and  others  for  labor,  and  the  notes 
go  into  circulation.  When  the  cloth  is  sold,  and  J  pays  C, 
C  pays  the  bank,  and  then  the  currency  is  retired.  Thus, 
while  the  goods  are  passing  from  producer  to  consumer,  the 
money  circulates,  and  no  longer.  Increase  and  decrease  of 
production  thus  produces  a  like  increase  and  decrease  of  cur- 
rency, and  all  is  well. 

The  fallacy  of  omitting  two  facts  is  apparent.  C  may  not 
discount  the  bill.  It  will  depend  upon  circumstances,  the 
principal  motive  being,  perhaps,  speculative.  The  rate  of 
discount  will  also  have  much  to  do  with  the  amount  of  dis- 
counts. By  this  it  is  partly  optional  with  the  bank  how 
much  currency  it  will  issue.  Once  encourage  discounts  by 
any  reduction  of  the  rate,  and  increased  currency  follows, 
which,  by  raising  prices,  induces  speculation,  and  still  fur- 
ther discounts.  The  rate  of  discount  is  seen  here  to  be  the 
prime  mover  in  this  series  of  cause  and  effect.  Yet  specula- 
tion is  charged  Avith  the  trouble  when  the  bubble  bursts. 
This  process  of  inflation  may  occur,  and  generally  does, 
without  any  reduction  in  the  rate  of  discount,  and  frequently 


PANICS.  45 

in  spite  of  au  advance  in  the  rate.  Suppose,  for  any  cause, 
there  is  a  rise  in  clotli;  so  that  the  same  quantit}-  that  for- 
merly gave  rise  to  $1,000  of  discounts  is  now  good  for  $1,200. 
There  is  $200  of  inflation,  and  $200  more  to  buj^  beef,  etc.^  and 
beef  rises.  B  can  now  afford  better  furniture,  and  trade  begins 
to  "boom.'"  Now  a  car-load  of  furniture  from  F,  that  was 
discounted  at  $1,000,  goes  in  for  $1,200,  and  so  with  mer- 
chandise generally.  After  a  while  this  collapses,  and  C  comes 
back  to  bank  with  only  $1,000.  The  same  with  the  furniture 
man,  and  the  bank  makes  up  the  loss  out  of  its  coin  when 
the  extra  $100  comes  back  through  some  one  else.  But  the 
bank  now  has  a  claim  for  the  $400  in  coin  against  C  and  F, 
to  whom  it  never  loaned  anything  but  a  promise  on  paper, 
and  a  bankrupt  sale  closes  the  scene. 

Where  is  the  regulating  power  of  this  arrangement?  Who 
is  to  blame,  A,  the  banker,  who  discounts,  or  B,  C,  and  F, 
who  knew  nothing  of  "finance?"  This  collapse  comes  in 
this  way.  High  prices  of  cloth  and  furniture  render  it  more 
profitable  to  the  exporter  to  export  coin  and  import  merchan- 
dise. This  export  of  the  basis  raises  its  value,  and  when  the 
run  once  starts,  it  is  further  advanced  as  already  explained. 

§  31.  Much  of  the  bankruptcy  and  mischief  is  due  to  the 
system  of  building  up  loans  and  discounts  on  a  fabric  of 
bank  paper,  which  is  not  money,  and  cannot  pay  debt.  The 
issue  of  bank  notes  is  nothing  less,  as  Jevons  says,  than  a  "  bull " 
operation  on  the  money  market.  So  long  as  the  credit  of  the 
note  is  maintained,  it  operates  as  money,  and  has  the  same 
effect  upon  business.  When,  however,  an  attempt  is  made 
to  realize,  the  actual  supply  of  money  is  found  to  be  short  of 
the  nominal  supply  by  the  amount  of  bank  paper  afloat.  If 
a  man  goes  to  market  with  "  phantom  "  wheat,  and  on  his 
credit  sells  what  he  does  not  possess,  it  is  considered  a 
criminal  act  in  some  countries,  and  is  looked  upon  with  dis- 
favor even  in  this  country  of  loose  morals. 

Let  us  examine  this  structure  of  bank  paper  and  credits, 
and  see  how  it  is  built  up.  The  following  illustration  shows 
the  relative  bulk  of  basis  and  superstructure.  The  black 
block  is  the  money  (coin  or  other  legal  tender)  in  the  bank; 


46 


THE  SCIENCE  OF  MONEY. 


the  next,  the  bank  notes;   and  the  upper,  the  deposits;    the 
lower,,  the  loans  and  discounts. 

1834. 

Deposits 

Bank  Notes 

Coin 

Loans  &  Discounts. 


* 


1837. 


$  75,666,986 

94,839,570 

40,000,000 

324,119,499 

^127,397,185 

149,185,890 

37,915,340 

525,115,702 


Deposits 

Bank  Notes. . . . 
Coin 

Loans  &  Disc'ts. 

If  we  substitute  bushels  of  wheat  for  dollars  of  money, 
and  allow  the  elevator  to  displace  the  bank,  we  shall  have  a 
clearer  idea  of  the  operation.  In  1837  A,  the  owner  of  the 
elevator,  had  37,915,340  bushels  of  wheat;  he  had  sold  and 
agreed  to  deliver  on  demand  149,185,890  bushels.  These 
contracts  were  circulating  among  wheat  dealers  as  wheat. 
In  bartering  these  contracts  for  goods,  they  supposed  that 
they  were  handling  actual  wheat,  A  had  received  on  storage 
from  his  neighbors  both  real  wheat  and  paper  wheat,  and 
instead  of  keeping  it,  had  immediately  let  it  go,  trusting  to 
be  able  to  collect  his  loans  when  called  upon  to  fill  his  con- 
tracts. This  goes  on  until  he  has  apparently  in  storage  127,- 
397,185  bushels.  It  comes  about  thus.  B  deposits  with  A 
1,000  bushels.  A  at  once  loans  or  sells  it  to  C,  C  pays  it  to 
D,  and  D  deposits  the  same  again  in  the  warehouse,  taking  a 
receipt  for  it.  It  then  goes  around  again,  and  so  on  indefi- 
nitely, until  the  whole  fabric  stands  thus: 

Bushels. 

Wheat  sold  by  A  on  demand 149,185,890 

Wheat  stored  Avith  A  uu  call .127,;597,185 

Wheat  contracted  to  A  on  future  delivery 525,115,702 

Wheat  actually  in  hands  of  A 37,915,340 

The  outside  situation  at  that  time  would  be  correctly  rep- 
resented by  28,000,000  bushels  in  the  hands  of  producers, 
millers,  etc.,  and  a  large  amount  of  corresponding  contracts 
in  the  shape  of  book  accounts,  notes,  bonds,  and  mortgages, 
drawn  against  wheat. 


PANICS.  47 

One  can  easily  imderstand  how  an  export  demand  for 
wheat  would  result.  The  wheat  supposed  to  be  in  the  mar- 
ket would  be: 

Pu.shels. 
Wheat  on  hand  owned  by  A ;!7,Uiy,o40 

Wheat  sold  on  call  by  A 149,185,890 

Wheat  deposited  on  call  with  A 127,397,185 

Total 314,498,415 

Contracts  for  wheat  to  be  met  within  a  short  time: 

Bushels. 
Wheat  sold  on  call  by  A 149,185,890 

Wheat  stored  on  call  with  A 127,397,185 

Wheat  contracted  for  future  delivery  to  A 525,115,702 

Total 801,698,777 

Actual  wheat  available  in  possession  of  A,  37,915,340  bush- 
els and  such  as  may  be  got  from  the  28,000,000  bushels  in 
the  hands  of  farmers  and  others.  All  this  supposed  wheat 
is  operating  as  real  wheat  to  the  extent  of  314,498,415  bush- 
els, and  goes  to  the  market  as  such  in  exchange  for  other 
goods.  Now  let  an  export  demand  arise  for  wheat.  All  now 
begin  to  call  for  wheat  and  demand  the  real  article.  Those 
to  whom  A  has  sold  on  call  to  the  amount  of  149,185,890 
bushels,  begin  to  draw  on  the  37,915,340  of  actual  stock.  A 
begins  to  draw  on  the  525,115,702  bushels  sold  to  him  on 
future  delivery  (by  curtailing  his  loans  and  discounts).  Oth- 
ers in  turn  begin  to  draw  on  the  wheat  in  storage  (or  sup- 
posed to  be),  and  the  fabric  rapidly  shrinks. 

Meantime  those  that  have  sold  wheat  must  have  it  to 
meet  their  obligations.  As  wheat  rapidly  advances  in  price, 
they  are  caught  and  ruined.  In  case  wheat  is  the  medium  of 
exchange,  men  would  say  ''a  bushel  is  a  bushel  and  the 
standard  of  values."  As  this  fabric  of  phantom  wheat  dis- 
appears, all  prices  fall,  business  stagnates  for  the  want  of 
wheat,  and  debtors  are  ruined  by  the  wholesale. 

We  have  here  described  banking  exactly  as  it  is  conducted, 
substituting  wheat  merely  to  eliminate  the  superstition  which 
surrovmds  the  idea  of  money  in  the  minds  of  many.  There 
is  no  difference  between  the  one  and  the  other.  If  it  is 
legitimate  to  sell  wheat  when  you  have  it  not,  to  sell  wheat 
to    be     delivered    on    call,    to    take    the     contract    again 


48  THE  SCIENCE  OF  MONEY. 

on  storage,  as  wheat,  and  to  sell  it  over  and  over 
again  indefinitely,  then  banking,  as  conducted,  is  legiti- 
mate and  not  otherwise.  Either  will  breed  panics,  and 
ruin  all  those  who  have  anything  to  do  with  them,  except 
those  inside  the  ring  who  are  sufficiently  skillful  to 
to  scoop  in  the  plunder.  In  the  case  of  the  wheat  operations, 
only  operators  in  wheat  are  the  sufferers.  But  what  shall  we 
say  of  a  government,  empowered  by  the  sovereign  people  to 
regulate  the  value  of  wheat,  if  it  makes  wheat  a  legal  tender 
and  then,  countenancing  such  a  scheme  as  here  described,  by 
law  compels  the  entire  people  to  "  take  a  hand  in  the  game." 

When  the  victims  understand  it,  such  a  government  will 
disappear  and  a  new  one  spring  up,  that  will  remove  the 
money  far  from  the  control  of  monej^  brokers  and  gold 
gamblers. 

§  32.  It  may  be  urged  that  this  has  been  done  by  establishing 
the  National  Banking  system.  Let  us  see  :  The  bonds  are 
the  basis  of  the  system.  They  are  no  d^ubt  as  good  as  the 
wheat  now.  They  were  not  once,  and  may  not  be  again.  At 
all  events,  they  are  not  tvheat,  but  promises  to  pay  it.  We 
have  now  this  arrangement.  We,  the  people,  have  consumed 
a  vast  amount  of  property  for  which  we  now  owe,  and  have 
promised  to  pay  over  2,000,000,000  of  bushels  of  wheat  at  our 
future  option.  You.  the  bunkers,  may  sell  on  call  to  nine- 
tenths  of  the  amount,  and  we  will  endorse  your  sales,  under- 
taking to  provide  the  wheat,  if  you  fail  to  do  so.  But  if  we 
provide  the  wheat,  you  must  forfeit  so  much  of  our  wheat 
contracts.  This  will  not  increase  the  real  wheat,  but  it  will 
compel  the  government  to  furnish  the  wheat  at  any  price 
when  the  panic  comes,  and  the  "  bulls  "  have  it  all  their  own 
way.  Against  this  contingency  the  wheat  gamblers  (bankers), 
pat  up  a  margin  of  10  per  cent.  This  scheme  will  be  exam- 
ined further  hereafter. 

§33.  In  "Sumner's  History  of  the  American  Currency," 
page  249,  is  published  a  summary  of  the  famous  "Bullion 
Report."  In  speaking  of  the  importance  of  this  document, 
Mr.  Sumner  says: 

*"Tlie  report  of  this  committee  is,  perhaps,  the  most  important 
document  in  financial  literature.    Its  doctrines  have  been  tested 

*W.  G.  Sumner  Hist.  Aiiier.  ("ur.,  p.  248. 


PANICS.  49 

both  ways,  by  disbelief,  and  by  belief,  by  experiment  of  their 
opposites,  and  by  experiment  of  themselves.  They  are  no  longer 
disputable.  They  are  not  matter  of  opinion  or  theory,  but  of 
demonstration.  They  are  ratified  and  established  as  the  basis  of 
finance.  They  may  be  denied,  as  the  roundness  of  the  earth  was 
denied  even  five  years  ago,  and  as  Newton's  theory  of  the  solar 
system  was  denied  until  within  twenty-five  years,  but  they  have 
passed  the  stage  where  the  scientific  financier  is  bound  to  discuss 
them." 

The  summary,  as  given  by  Mr.  Sumner,  is  here  reprinted  in 
full.  The  truth  of  scarcely  a  proposition,  as  laid  down,  can 
be  questioned,  and  yet,  so  incomplete  are  many  of  the  propo- 
sitions as  stated,  and  so  plainly  do  they  ignore  the  admitted 
fact  of  the  fluctuation  in  gold,  that  when  taken  as  a  whole 
they  give  rise  to  the  falsest  conclusions.  For  the  convenience 
of  the  reader  they  are  reprinted  below,  with  corrections  fol- 
lowing each  proposition: 

"  1.  The  value  of  an  inconvertible  currency  depends  on  its 
amount  relatively  to  the  needs  of  the  country  for  circulating 
medium  (only  to  a  very  subordinate  degree  on  the  security 
on  which  it  is  based,  or  the  credit  of  the  issuer)." 

"  2.  If  gold  is  at  a  premium  in  paper  the  paper  is  redun- 
dant and  depreciated.  The  premium  measures  the  deprecia- 
tion." 

If  gold  is  at  a  premium  in  paper  the  paper  may  be  re- 
dundant and  depreciated,  or  the  gold  may  be  scarce  and  aj)- 
preciafed,  or  both  may  be  true  at  the  same  time.  The  premium 
measures  only  the  difference  in  value  between  the  two. 

"  3.  The  limit  of  possible  fluctuatioiis  in  the  exchanges  is 
the  expense  of  transmitting  bullion  from  one  country  to  the 
other.  If  it  costs  2  per  cent,  to  transmit  bullion,  the  fluctua- 
tions of  the  exchange  due  to  the  ratio  of  imports  and  ex- 
ports never  can  exceed  2  per  cent,  above  or  below  par.  Par 
of  exchange  is  the  par  of  the  metals,  weight  for  weight,  in 
the  two  coinages." 

This  ])^'opositton  proceeds  upon  the  assumption  that  a 
potind  of  gold  is  always  equal  to  a  pound  of  gold.  This  may 
be  true  in  iveights;  it  is  not  in  matters  of  value. 

"  4.  If  there  is  a  drain  of  the  precious  metals,  it  is  due, 
aside  from  exportations  to  purchase  food  or  pay  armies,  etc., 

4 


60  THE  SCIENCE  OF  MONEY. 

to  the  presence  of  an  inferior  currency  of  some  sort  in  the 
country  it  leaves." 

If  there  is  a  drain  of  the  precious  metals,  it  is  due,  aside 
from  exportations  to  purchase  food,  or  pay  armies^  etc.,  to 
the  presence  of  a  curreitctj  irifh  a  utiit  of  lower  value  in  the 
country  it  leaves^  or  to  an  increase  of  value  in  the  metals 
abroad. 

"5.  If  the  inferior  currency  be  removed,  the  exchanges 
will  be  turned,  the  outflow  will  stop,  and,  if  any  vacuum  is 
created,  i>old  will  flow  in  to  supply  it. 

"Gold  will  not  flow  in  while  the  inferior  currency  fills  the 
channels  of  circulation.^' 

If  the  lower  curre::cy  be  svfficientJy  contracted.,  the  ex- 
changes will  be  turned,  the  outflow  will  stop,  and  if  a  suffi- 
cient vacuum  is  created  gold  will  flow  in  to  supply  it. 

Gold  will  not  flow  in  while  the  lower  currency  fills  the 
channels  of  circulation,  unless  the  gold  falls  sufficiently  in 
value. 

''  6.  In  the  presence  of  a  panic  the  duty  of  the  bank  is  ta 
discount  freely  to  all  solvent  parties. '"" 

In  the  presence  of  a  punic,  it  is  the  duty  of  the  bank  to 
pay  its  own  debts  and.  keep  itself  solvent. 

''  The  still  more  fundamental  laws  involved  are  these: 

"  1.  The  amount  of  gold  in  the  world  will  suffice  to  per- 
form the  exchanges  of  the  world.  If  there  be  more  or  less 
it  will  only  aflect  the  average  level  of  priqes  the  world  over/^ 

The  amount  of  gold  in  the  world  will  suffice  to  perform 
the  exchanges  of  the  world,  provided  j^^'ices  are  adjusted  ac- 
cordingly. If  there  be  more  or  less  it  will  not  only  afifect 
the  average  level  of  prices  the  world  over,  but  by  changes  in 
locality,  or  in  amount,  it  'will  affect  prices  unequally  in  differ- 
ent countries;  it  will  change  contracts  to  pay,  and  tvill  disturb 
business  generally. 

"2.  Every  nation  will  have  that  portion  of  the  stock  of 
gold  in  the  world  which  is  proportioned  to  its  trade.  Each 
nation  will  have  just  as  much  as  it  needs." 

Every  nation  will  have  that  portion  of  the  stock  of  gold  in 
the  world  which  is  proportioned  to  its  demand  for  gold,  pro- 
vided it  is  willing  to  sacrijlce  enough  to  get  it.     Each  nation 


PANIC8.  51 

will  have  just  as  much  as  it  is  willing  to  purchase,  regardless 
of  cost. 

"3.  A  better  aad  a  worse  currency  cannot  circulate  to- 
gether.    The  worse  will  drive  out  the  better." 

A  currency  of  a  higher  unit  of  value  and  one  of  a  lower 
cannot  circulate  together.  Whichever  for  the  time  has 
the  lower  value  will  displace  the  other.  The  better  may  drive 
out  the  ivorse. 

The  moon  is  round;  a  cart-wheel  is  round.  Ergo,  the  moon 
is  a  cart-wheel. 

When  the  whole  story  is  told,  however,  Mr.  Sumner's  con- 
clusion that  the  ''  Bullion  Report"  is  infallible,  seems  about 
as  absurd  as  that  the  moon  is  a  cart-wheel. 

1.  The  first  proposition  as  laid  down  is  substantially  true, 
"The  value  of  an  inconvertible  currency^'  does  "depend  on 
its  amount  relatively  to  the  needs  of  the  country  for  circu- 
lating medium."  But  it  depends  on  something  else.  Act- 
ivity as  well  as  amount  has  to  do  with  value  in  currency. 
The  total  amount  of  currency  issued  indeed  has  very  much 
less  to  do  with  value  than  the  amount  actually  circulating. 
Activity  often  removes  the  demand  for  a  large  amount  of 
currency,  while  at  the  same  tmie  it  calls  into  circulation  vast 
hoards  of  inactive  currency.  When  currency  is  depreciating, 
hoarded  money  is  always  thrown  upon  the  market,  thus 
aggravating  the  depreciation.  When  currency  is  appreciat- 
ing, circulating  capital  is  stored  away  or  hoarded,  thus  aggra- 
vating the  appreciation.  In  either  case,  hoards  being  thrown 
loose,  or  loose  funds  being  hoarded,  only  accelerates  instabil- 
ity. It  is  only  when  currency  is  perfectly  stable  that  this 
effect  does  not  follow. 

2.  The  second  proposition  states  only  half  the  truth.  Evi- 
dently it  is  based  upon  the  assumption  that  gold  is  stable. 
It  has  been  shown  to  be  thoroughly  unstable.  Every  polit- 
ical economist  of  any  note,  from  Adam  Smith  down,  admits 
this  to  be  true. 

*"ftoltl  and  silver,  however,  like  every  other  commodity,  are 
sometimes  cheaper  and  sometimes  dearer;  sometimes  of  easier 
and  sometmies  of  more  diflicult  purchase.    The  discovery  of  the 

*  Adam  Smith  :  Wealth  of  Nations,  p.  38. 


62  THE  SCIENCE  OF  MONEY. 

abundant  mines  of  America  reduced,  in  tlie  sixteenth  century, 
the  value  of  gold  and  silver  in  Europe  to  about  one-third  of  what 
it  had  been  before,  and  this  revolution  in  their  value,  though  per- 
haps the  greatest,  is  by  no  means  the  only  one  of  which  history 
gives  some  account.  But,  as  a  measure  of  quantity,  such  as  a 
foot,  fathom,  or  handful,  which  is  continually  varying  in  its  own 
quantity,  can  never  be  an  accurate  measure  of  the  quantity  of 
other  things,  so  a  commodity  which  is  itself  continually  varying 
in  its  own  value  can  never  be  an  accurate  measure  of  the  value 
of  other  commodities." 

*  "  Silver,  in  bullion  or  money,  changes  its  value  from  any  change 
in  its  quantity,  or  in  the  demand  for  it.  In  either  of  these  cases 
goods  are  said  to  be  dearer  or  cheaper;  but  'tis  silver  or  money  ia 
dearer  or  cheaper,  being  more  or  less  valuable,  and  equal  to  a 
greater  or  lesser  quantity  of  goods." 

:J:"The  value  of  money  is  inversely  as  general  prices :  falling 
as  they  rise,  and  rising  as  they  fall.  *  *  ♦  * 

Let  it,  therefore,  be  remembered — and  occasions  will  often  arise 
calling  it  to  mind — that  a  general  rise  or  a  general  fall  of  values 
is  a  contradiction,  and  that  a  general  rise  or  general  fall  of  prices 
is  tantamount  to  a  rise  or  fall  in  the  value  of  money."     *     * 

f'But  there  is  abundance  of  evidence  to  prove  that  the  value 
of  gold  lias  undergone  extensive  changes.  Between  1789  and  1809, 
it  fell  in  the  ratio  of  100  to  54,  or  by  46  per  cent.,  as  I  have  shown 
in  a  paper  on  the  variation  of  prices  since  1782,  read  to  the  London 
Statistical  Society  in  June,  1805.  From  1809  to  1849,  it  rose  again 
in  the  extraordinary  ratio  of  100  to  245,  and  by  145  per  cent., 
rendering  government  annuities  and  all  fixed  payments,  extending 
over  this  period,  almost  two-and-a-lialf  times  as  valuable  as  they 
were  in  1809.  Since  1849,  the  value  of  gold  has  again  fallen  to  the 
extent  of  at  least  20  per  cent.,  and  a  careful  study  of  the  fluctua- 
tions of  prices,  as  shown  eitiier  in  the  American  Reviews  of  Trade 
of  the  Economist  newspaper,  or  in  the  paper  referred  to  above, 
shows  that  fluctuations  of  from  10  to  25  per  cent,  occur  in  every 
credit  cycle." 

I  "  The  i)recious  metals  are  often  spoken  of  as  'the  standard  of 
value,'  wliich  is  true  only  in  a  restricted  sense.  A  standard  must 
remain  the  same,  however  other  things  change;  and  this  is  cer- 
tainly not  true  of  gold  and  silver.  Their  jnirchasing  power  has 
been  continually  varying,  generally  declining,  as  the  natural  de- 
posits of  their  ores  have  been  laid  bare,  and  the  resi.stanue  of 
nature  to  those  who  searched  for  them  has  diminished." 

*.Iolui  Law  :  Money  and  Trade  ('onsidcred.  fliap.  v. 

tJ.  H.  Mi!l  :  I'rinciples  of  Political  Kconoiny.  pafi;e  •^07-267. 

•fW.  Staiili'V  .Ffvons'  Meclianisni  of  ExidiaiiK<\  P-  ■'-•'i- 

I  K.  E.  Tliuinpson  :  Social  Science  and  Nat.  Economy,  p.  160. 


PANICS.  53 

3.  Tliis  proposition  again  is  true  only  under  certain  circum- 
stances. It  is  based  upon  the  theory  that  gold  flows  freelj'' 
from  one  country  to  another  immediately  any  vacuum  is 
created  for  it.  This  is  entirely  false.  In  1864,  during  the 
months  of  July  and  August,  gold  stood  at  from  254  to  285, 
while  the  average  price  for  the  year  was  202.  This  change 
in  price  was  not  due  to  a  depreciation  in  paper,  because  the 
paper  prices  of  other  commodities  did  not  change  accordingly, 
nor  due  to  a  fall  in  commodities,  since  there  was  no  such 
increased  supply  during  those  months.  And  yet,  during 
those  two  months,  gold  did  not  flow  in  from  Canada  or  Eng- 
land, or  any  other  country,  sufficiently  to  reduce  it  to  its 
normal  level.  Certainly  something  more  than  cost  of  trans- 
portation kept  gold  out  from  New  York  during  those  months. 
The  truth  was,  that  these  countries  had  not  the  gold  to  spare 
and  accordingly  its  value  advanced  abroad  until  it  rose  to 
the  par  exchange  of  New  York.  This  abnormal  advance 
resulted  in  the  panic  which  struck  the  Bank  of  England 
in  1866. 

4.  The  language  of  this  proposition  tends  to  deceive  as  to  the 
real  nature  of  a  good  and  a  bad  currency.  Because  a  currency 
has  a  unit  of  lower  value,  is  it  necessarily  an  inferior  currency  ? 
Superiority  of  a  currency  depends  upon  stability  of  value, 
not  upon  possessing  a  high  unit  of  value.  Inferiority  consists 
no  more  in  lowering  the  unit  than  in  raising  it.  The  horse 
and  wheat  game  shows  that  by  lowering  the  unit  a  given 
amount,  the  debtor  can  defraud  his  creditor  50,  while  by 
raising  the  unit  the  same  amount,  the  creditor  can  defraud 
his  debtor  100.  Sometimes  paper  is  the  inferior  currency; 
sometimes  the  precious  metals  are  the  inferior  money.  There 
is,  moreover,  left  out  entirely  from  this  proposition,  any 
allusion  to  the  fact,  that  a  drain  of  the  precious  metals  may 
follow  upon  an  increase  of  value  in  the  metals  abroad. 

5.  The  preceeding  proposition  evidently  ignored  a  principle 
which  underlies  the  correct  theory  of  the'  flow  of  gold;  this 
proposition  boldly  states  a  false  theory  of  the  flow  of  gold. 
Grold  will  flow  in  to  fill  a  vacuum,  Imt  the  vacuum  must  be 
sufficient  to  start  it.  A  counteractiug  vacuum,  where  the  gold 
chances  to  be,  will  easily  prevent  its  flow.  The  laws  of  friction, 


64  THE  SCIENCE  OF  MONET. 

of  inertia,  and  of  counteracting  forces,  apply  as  directly  to 
the  mechanisms  of  finance,  as  to  those  of  mechanics.  This 
proposition  also  ignores  the  principle  that  gold  may  so  fall 
as  to  become  the  currency  of  lower  unit,  and  as  such  displace 
any  other  currency  which  may  at  the  time  fill  the  channels 
of  circulation. 

6.  The  sixth  proposition  again,  states  only  half  the  truth. 
In  the  presence  of  a  panic,  the  duty  of  the  bank  is  to  discount 
freely  for  all  solvent  parties  only  when  it  can  pay  its  own 
debts  and  keep  itself  solvent.  The  fact  is,  no  bank  of  issue 
is  able  to  do  this.  The  privilege  of  issue  depends  upon  the 
understanding  that  the  bank  should  never  be  called  upon  to 
redeem  its  promises.  In  times  of  prosperity,  it  is  easy  for  a 
bank  to  persuade  business  men  to  take  promises  to  pay,  as 
money,  to  any  extent;  but  when  a  panic  threatens,  the  policy 
must  change.  As  with  the  business  man,  it  now  becomes 
necessary  for  the  bank  to  postpone  creditors,  and  at  the  same 
time  take  up  its  paper  as  rapidly  as  possible,  refraining  from 
issuing  more.  It  is  also  necessary  for  the  bank  to  discount, 
to  a  certain  extent,  lest  too  many  fail,  and  loans  already  made 
be  lost.  Therefore,  under  the  present  arrangement,  the 
banks  are  compelled  to  discount,  in  time  of  a  panic,  to  a  lim- 
ited extent.  They  cannot,  on  the  one  hand,  discount  freely 
to  all  solvent  parties,  nor,  on  the  other,  refuse  wholly  to  dis- 
count at  all.  Either  course  would  speedil}'  result  in  disaster 
and  ruin.  If,  however,  the  bank  could  pay,  dollar  for  dollar, 
the  whole  of  its  indebtedness,  it  could,  with  safety,  discount 
freely  for  all  solvent  parties,  and  thus  tide  over  the  panic.  It 
is  possible,  as  we  have  seen,  that  a  truth  stated  only  in  part 
may  partake  of  the  nature  of  a  falsehood,  and,  from  its 
plausibility,  may  do  incalculably  more  harm. 

Mr.  Sumner  reduces,  further,  these  six  propositions  to 
three  more  fundamental  laws: 

1.  The  first  would  be  a  part  of  the  truth  if  the  woi*d  ^'"onlif 
were  omitted;  it  would  not  then  be  the  whole.  Suppose  the 
amount  of  gold  in  the  world  to  be  diminished  or  increased 
without  an  immediate  corresponding  change  in  prices.  Cer- 
tain exchanges  will  not  be  effected.  Either  if  gold  becomes 
scarce,  there  will  bo  a  surplusage  of  merchandise,  and  no  gold 


PANICS.  55 

to  exchange  for  it;  or  if  gold  becomes  plenty,  there  will  be  a 
surplusage  of  gold,  and  no  merchandise  to  exchange  for  it. 
It  is  only  when  prices  have  become  adjusted  that  the  amount 
of  gold  in  the  world  will  suffice  to  perform  the  exchanges  of 
the  world.  Again,  a  change  in  the  amount  of  gold  does  more 
than  aifect  the  general  level  of  prices  the  world  over.  It  will 
thus  result  in  time,  but  who  shall  say  how  man}'  honest 
merchants  shall  be  ruined  during  the  process,  on  account  of 
the  unequal  effect  in  different  countries,  the  changes  in  the 
contracts  to  pay,  and  the  general  disturbance  of  business. 

2.  The  fallacy  in  this  second  fundamental  law  is  that  one 
to  which  attention  has  been  so  frequently  called.  Only  part 
of  the  truth  is  stated.  Every  nation  may  have  that  portion 
of  the  stock  of  gold  in  the  world  which  is  proportioned  to 
its  demand  for  gold,  if  it  will  take  the  proper  Course  to  get  it. 
It  is  a  mistake  to  suppose  that  its  stock  of  gold  will  bear  any 
fixed  ratio  to  the  amount  of  its  trade.  India,  with  a  very 
small  trade,  and  almost  no  business,  uses  enormous  quantities 
of  coin;  while  England,  the  most  thoroughly  commercial 
and  mercantile  nation  in  the  world,  uses  very  little.  France, 
doing  its  business  with  the  use  of  very  little  credit,  must 
have  large  quantities  of  coin;  while  the  United  States,  doing 
its  business  largely  by  means  of  credits,  and  paper  based  on 
credits,  needs  and,  therefore,  uses  very  little  coin.  And, 
even  in  the  United  States,  it  will  be  seen  by  a  reference  to 
the  diagram,  that  an  influx  of  gold  into  the  countrj^  does  not 
by  any  means  indicate  an  increase  of  general  trade.  Indeed, 
the  reverse  is  more  near  the  truth.  As  civilization  advances, 
and  we  transfer  the  functions  of  money  from  the  uncertain 
and  fluctuating  gold  to  a  more  suitable  paper,  the  relative 
amount  of  gold  used  as  money  gradually  but  certainly 
decreases. 

One  hundred  years  ago,  the  ratio  of  iron  horses  to  those  of 
flesh  was  very  small.  Now  it  is  very  much  larger,  and  who 
vshall  say  how  large  that  ratio  may  become  in  the  next 
hundred  years.  So  the  time  is  surely  coming,  if  the  dictates 
of  reason  are  followed,  when  the  uncertain  and  clumsy  gold 
shall  yield  to  the  sway  of  a  well  regulated  and  stable  paper 
currency. 


56  IHE  SCIENCE  OF  SIDNEY. 

3.  No  fallacy  seems  more  common  and  deep  rooted  in  the 
minds  of  modern  reasoners  on  finance  than  that  the  lower 
the  unit  the  more  inferior  the  currency.  Silver  and  gold 
have  each  been  in  turn  the  currency  of  the  lower  unit  of 
value,  and  yet  no  well  informed  writer  for  a  moment  pre- 
tends that,  on  that  account,  the  higher  currency  is  the  better 
one.  Indeed,  a  reference  to  the  diagram,  No.  1,  will  show 
that,  as  a  rule,  the  lower  currency  follows  most  nearly  the 
general  average.  Superiority,  as  we  have  had  occasion  to 
say  before,  consists  in  stability  of  purchasing  power.  We  have 
passed  that  stage  of  barbarism  when  that  currency  is  best 
adapted  to  our  needs  which  combines  the  largest  amount  of 
merchandise  with  the  smallest  amount  of  extension  or  weight. 
We  no  longer  look  upon  that  money  as  the  most  desirable 
which  will  resist  the  longest  the  decay  of  the  elements  or  the 
ravages  of  vermin,  which  will  the  best  endure  the  conflagra- 
tions of  cities,  or  the  longest  outlast  the  fall  of  empires.  We 
do,  however,  regard  that  currency  as  the  most  sound  and 
honest  which  retains  its  purchasing  power  unchanged  through 
the  lapse  of  time.  Such  a  currency  must  be  made  expressly 
for  the  purpose;  no  merchandise  is  sufficiently  stable  in  value. 


CHAPTER  VI. 

DEMONSTRATION  OF  THE  PHILOSOPHY  OF  MEASUREMENT. 

§  34.  It  is  a  fact  familiar  to  the  experience  of  anyone  who 
has  had  occasion  to  exchange  money  for  goods,  that  the 
goods  and  money  do  not  always  exchange  in  the  same  ratio. 
One  cannot  always  know  how  much  money  may  be  procured 
with  a  given  amount  of  goods,  nor  can  he  be  often  certain 
how  much  goods  his  money  will  purchase.  An}'  attempt  to 
discover  the  cause  of  this  uncertainty  invariably  leads  to  an 
examination  of  the  laws  of  exchange. 

§  35.  All  fair  exchanges  rest  upon  an  equality  of  value 
(either  I'eal  or  supposed)  in  the  things  exchanged.  Should 
$90  exchange  at  one  time  for  a  ton  of  general  merchandise, 
and  at  another  for  three  tons  of  the  same  merchandise,  in 


PHILOSOPHY  OF  MEASUREMENT. 


57 


both  cases  the  i?90  is  equal  in  value  to  the  merchandise  for 
which  it  is  exchano;ed. 

§  36.  But  three  theories  are  possible.  First,  the  currency 
was  stable  in  value  and  the  goods  changed.  Second,  the 
goods  were  stable  and  the  currency  changed.  Third,  both 
might  have  changed. 

By  observing  the  circumstances  and  applying  the  laws  of 
value,  we  can  solve  the  problem.  Lest  confusion  xaay  arise, 
we  premise  that  the  demand  for  the  goods  is  the  currency 
and  credits  of  the  buyers.  The  demand  for  the  money  is  the 
merchandise  of  the  sellers.  The  demand  of  borrowers  for 
money  is  not  a  demand  for  money,  but  for  goods,  and  is 
manifested  in  an  expansion  of  credits,  this  being  the  reason 
why  a  la«ge  volume  of  curreacy  does  not  permanently  reduce 
interest,  or  a  small  voLume  of  currency  permanently  increase 
it. 

The  adjustment  of  prices  operates  on  the  principle  of  a 
balance.  All  the  merchandise  in  circulation  must  balance 
all  the  money  and  credits.  The  currency  having  a  fixed 
nominal  unit,  when  its  quantity  changes,  the  value  of  its 
unit  is  supposed  to  remain  unchanged.  This  cannot  be  the 
case  unless  the  goods  change  in  real  value  to  the  extent  that 
they  change  in  price. 

We  represent  here  two  balances,  indicating  the  situation  of 
the  markets  in  1837  and  1843.  The  money  equaled  the  same 
merchandise  in  each  case,  either  a  fixed  amount  of  one  or  the 
other  had  changed  in  value. 


58 


THE  SCIENCE  OF  MONEY. 


During  the  past  fifty  years  several  such  changes  have 
occurred.  Tlie  accompanying  circumstances  with  regard  to 
the  supply  of  currency,  loans  and  discounts,  imports  and 
exports,  coinage,  etc.,  can  be  fully  understood  by  reference 
to  diagram  No.  1. 

§  37.  The  first  remarkable  rise  of  prices  was  from  1834  to 
1836.  We  find  a  corresponding  rise  in  currency  and  credits, 
and  an  increase  of  exports,  coupled  with  a  larger  increase  of 
imports.  There  was  an  increase  of  currency  sufficient  to 
produce  the  effect;  there  was  no  diminution  of  the  goods,  but 
instead  an  increase,  indicating  a  fall  instead  of  rise  in  their 
real  value.  We  conclude,  therefore,  that  the  money  changed 
iu  its  value. 

§  38.  From  1837  to  1843,  we  find  a  fall  in  prices,  a  corres- 
ponding reduction  of  loans  and  discounts,  and  a  greater 
reduction  of  bank  paper.  Counteracting  this,  we  have  an 
import  of  bullion,  the  coinage  of  which  about  offsets  the 
excess  of  reduction  of  bank  paper.  During  this  time  impor- 
tation fell  off  enormously,  while  exportation  increased  until 
1840,  and  then  rapidly  diminished.  This  would  not  indicate 
a  surplus  of  products  in  market  to  cause  the  fall  of  prices, 
and  this  change  must  be  attributed  to  a  rise  in  the  value  of 
money. 

§  39.  From  1843  to  1846,  we  find  a  repetition  of  the  first 
period  of  expansion  of  currency  and  credits  and  rise  of  prices. 
From  1846  to  1847  prices  rose  still  further.     We  find  a  slight 


PHI.LOSOFYH  OF  3IEA8UREMENT.  69 

reduction  of  bank  notes  and  discounts,  and  a  rise  of  coinage 
about  sufficient  to  balance  them,  which  indicates  a  rise  in  the 
value  of  the  merchandise.  We  find  in  the  movements  of 
merchandise,  an  increase  of  one-third  in  exports,  and  no 
increase  of  imports.  Excessive  production  in  this  country 
■could  not  be  the  cause,  as  that  would  lower  prices.  There 
must  have  been  a  reduction  in  the  value  of  coin,  or  rise  in 
the  value  of  merchandise  abroad.  Short  crops  in  Europe,  a 
potato  famine  in  Ireland,  and  railway  building  in  England, 
tended  to  raise  the  value  of  merchandise  abroad.  The  Bank 
of  England  had  inflated  its  currency  and  discounts  enor- 
mously, which  reduced  the  value  of  coin.  In  this  ease,  there 
was  at  the  same  time  a  rise  in  the  value  of  goods,  and  a  fall 
in  the  value  of  money.  The  effect  upon  our  markets  was 
entirely  due  to  foreign  influences. 

§  40.'  From  1847  to  1849  we  find  a  fall  of  prices.  The 
movements  of  currency  and  discounts  was  irregularly  upward, 
and  that  of  the  coin  downward.  There  was  a  falling  off  of 
exports  and  an  increase  of  imports.  A  panic  in  England 
had  enhanced  the  value  of  their  coin,  and  we  had  returned  it 
io  them.  The  temporary  effect  on  merchandise  due  to  short 
•crops  disappeared,  which  is  shown  by  the  fact  that,  notwith- 
standing falling  prices,  the  gross  exportation  of  merchandise 
was  reduced,  and  imi)ortation  took  the  form  of  merchandise 
instead  of  gold. 

§  41.  From  1849  to .  1857,  we  have  another  period  of  ad- 
vancing prices.  Here  the  gold  mines  of  California  enter  into 
the  problem.  The  line  ot  credits  rose  irregularly  with  prices. 
€oinage,  bank  paper,  and  gold  production  rose  rapidly  the 
ffrst  three  years,  while  prices  remained  about  stationary. 
There  was  but  little  increase  of  importation,  and  this  phe- 
nomenon of  low  prices  and  rapid  increase  of  money  is 
accounted  for  by  the  fact  that  gold  was  hoarded  and  did  not 
go  to  market  the  first  two  years,  1848  and  1849.  From  1850 
to  1857,  there  was  a  decrease  of  coinage,  and  an  increase  of 
•export  of  bullion,  culminating  in  an  export  of  the  entire 
product  in  1857.  Imports  and  exports  had  been  advancing 
all  this  time,  and  industries  had  been  active  and  profitable. 
There  ■^ya??  no  scarcity  of  merchandise,  therefore,  to  run  up 


60  THE  SCIENCE  OF  MONEY. 

the  prices.     The  rapid  increase  of  exportation  of  the  metal 
indicated  a  fall  in  its  actual  value. 

§  42.  "From  1857  to  1858,  we  have  another  fall  of  prices, 
accompanied  by  contracted  currency  and  loans,  and  a  reduc- 
tion of  both  imports  and  exports,  and  an  increased  coinage 
indicating  a  purely  monetary  disturbance. 

§  43.  In  1859  there  was  a  slight  rise  of  prices,  accompanied 
by  a  corresponding  increase  of  currency  and  loans.  The 
next  year  enormous  crops,  against  a  small  increase  of  cur- 
rency and  loans,  reduced  prices  slightly.  1861  was  a  year  of 
preparation  for  the  war.  Our  imports  fell  off  considerably. 
We  exported  much  less  than  before.  There  was  an  enormous 
importation  of  coin  that  year,  our  stock  on  hand  being  in- 
creased by  the  entire  jDroduct  of  the  mines,  and  $16,500,000 
of  actual  importation.  This  was  the  first  time  since  the  dis- 
covery of  the  gold  mines  of  California  that  we  actually  im- 
ported coin.  We  find  a  slight  reduction  of  paper  currency, 
a  slight  reduction  of  credits,  and  an  increase  of  coinage. 
The  Government  was  becoming  a  buyer  to  a  considerable 
extent,  men  were  leaving  productive  industry,  and  yet  there 
was  a  fall  of  prices.  A  solution  of  this  lies  in  the  reduction 
of  credits  and  an  anticipation  of  the  war  market.  To  use  a 
sailor  phrase.  "  the  business  community  was  reefing  sail  pre- 
paratory to  a  storm." 

§  44.  In  1862,  '63,  and  '64,  there  was  a  decrease  in  the  ex- 
port of  merchandise,  and  an  increase  m  the  export  of  coin. 
Coin  prices  remained  low  and  stationary,  and  paper  prices 
were  rising.  We  have  here  two  kinds  of  money  and  two 
standards  of  measurement.  They  parted  at  the  suspension 
of  the  banks,  December,  1861,  and  paper  prices  rose  rapidly, 
while  coin  prices  rose  but  little. 

From  1862  to  the  present  time  we  have  had  two  nearly 
indejjendent  kinds  of  money,  and  the  elements  of  demand 
were  changed.  The  demand  for  coin  is  for  purposes  of  in- 
ternational trade,  duties,  and  interest  on  bonds.  Previously 
the  demand  was  not  only  for  these,  but  a  domestic  currency. 
As  soon  a«  it  cccised  to  circulate  as  a  domestic  currency,  the 
demand  was  reduced  in  that  direction.  But  there  followed  a 
rapidly-increasing  demand  for   export,  duties,   and  interest. 


PHILOSOPHY  OF  MEASUREMENT.  61 

This  maintained  its  value  until  1864,  when  the  export  of  our 
bonds,  which  could  be  had  for  about  fifty  cents  in  coin, 
brought  in  a  supply',  and  it  began  to  fall  in  value.  During 
the  three  years  that  gold  was  of  high  value,  the  Treasury  was 
hoarding  the  gold  received  for  imports,  which  at  that  time 
greatly  exceeded  disbursements  for  inteiest. 

The  large  export  of  coin  during  those  years  was  due  to  two 
causes:  At  the  beginning  of  the  war  we  had  a  large  stock 
which,  by  the  issue  of  legal  tender  paper,  was  displaced  as 
currency.  The  demand  for  merchandise  to  carry  on  the  war 
did,  no  doubt,  enhance  its  value,  so  that,  although  gold  had  a 
high  value,  we  had  no  other  articles  of  export  that  were  not 
also  of  high  value.  This  is  the  first  instance  where  a  supply 
of  paper  substitutes  did  not  affect  the  value  of  the  coin. 
This  is  accounted  for  when  it  is  considered  that  the  substitu- 
tion was  only  partial,  and  the  remaining  uses  for  coin  were 
sufficient  to  keep  up  its  value.  Had  the  paper  been  received 
for  imports,  the  coin  would  have  been  relieved  of  that 
duty.  Coin  would  have  been  worth  less,  and  paper  more. 
Coin  would  have  been  exported  as  a  commodity,  and 
eventually  have  parted  company  with  paper.  The  demand 
notes  of  1861  were  made  such  paper,  and  they  remained 
with  gold.  Had  all  the  paper  oeen  made  the  same,  the  quan- 
tity would  have  been  so  great  that  this  could  not  occur;  but 
gold  would  have  been  less  in  value,  and  paper  more. 

From  1864  to  1866  were  the  closing  scenes  of  the  war  and 
another  period  of  change.  There  was  an  immense  increase 
of  both  imports  and  exports  (the  former  a  little  in  excess),  a 
return  of  specie,  a  rise  of  specie  prices,  an  increase  of  cur- 
rency and  a  fall  of  paper  prices. 

A  revival  of  international  trade  followed  naturally  the 
return  of  vast  armies  to  productive  occupations.  The  fall  of 
paper  prices  against  inflating  currency  was  due  to  hoarding 
induced  by  the  expectation  that  the  Government  would  now 
retire  and  appreciate  its  currency,  and  also  to  the  increase  of 
merchandise  produced  by  those  who  had  been  but  lately  sol- 
diers. Gold  shows  exceedingly  abnormal  movements  during 
this  period.     Gold  and  paper  prices  changed  as  follows: 

GOLD.  PAPER. 

1864 46.25  94.02 

1865 - •■)1.56  81.08 

1866 60.00  84.52 

Rise  of  gold  prices,  IM.To        Fall  of  paper  prices,  O.-'iO 


62  THE  SCIENCE  OF  MONEY. 

While  gold  prices  were  low,  gold  had  been  exported  in 
large  quantities;  now,  with  gold  prices  rising,  gold  was 
imported  in  large  amounts.  This  cannot  be  accounted  for 
on  the  theory  that  merchandise  rose,  for  the  imports  would 
then  assume  the  form  of  merchandise  and  oar  merchandise 
export  would  not  have  so  increased.  Nor  can  we  consider 
gold  stable  for  another  reason.  In  1866  the  holder  of  gold 
would  give  71  cents  for  paper,  while  in  1864  he  would  give 
but  49  cents — an  advance  of  44  per  cent,  in  the  value  of 
paper  as  compared  to  gold.  The  merchant  who  would  give 
49  of  merchandise  in  1864  would  now  give  but  54  for  the 
paper — he  had  discovered  in  the  paper  an  advance  of  but  10 
per  cent.  The  merchandise  could  not  at  that  time  iiave 
advanced  by  the  difference  between  the  10  per  cent,  of  the 
merchant  and  the  44  per  cent,  of  the  gold  monger.  The 
gold  therefore  must  have  fallen.  During  the  war  very  few 
bonds  were  exported.  Now  the  success  of  the  Government 
was  assured,  and  bonds  Cjuld  be  had  for  coin  at  49  cents  on 
the  dollar.  This  caused  a  large  influx  of  coin  and  a  conse- 
quent fall  in  its  value.  This  export  of  cheap  bonds  operated 
as  an  export  of  cheap  goods,  calling  gold  from  abroad  until 
there  resulted  a  panic  in  Eugland  in  1866.  Now  a  counter- 
actiug  vacuum  caused  a  high  export  of  both  merchandise  and 
bullion  in  1866,  and  turned  the  line  of  gold  prices.  It  will 
be  noticed  that  coin  did  com'e  with  an  ''  inferior  currency 
filling  the  channels  of  trade,"  while  even  the  balance  of  trade 
in  merchandise  was  against  us.  This  export  of  bonds  simply 
anticipated  a  future  export  of  goods  and  produced  the  same 
effect  upon  the  markets  as  if  the  goods  had  been  actually 
exported  at  the  time. 

§  45.  From  1866  to  1869  we  find  a  contraction  of  currency, 
expansion  of  credits,  moderate  exports,  larger  imports,  an 
export  of  bullion  averaging  the  entire  product  of  the  mines, 
and  continued  falling  prices. 

§  46.  In  1860  the  credit  strengthening  act  was  passed. 
From  that  time  until  1873  was  continued  the  exportation  of 
bonds.  During  the  first  two  years  the  bonds  brought  coin, 
and  then,  owing  to  a  rise  of  coin  prices,  they  resulted  in  an 
enormous  importation  of  merchandise.     This  importation  of 


EXPERIMENTS,  63 

merchandise  prevented  any  rise  in  prices,  altliongh  credits 
were  expanding  and  the  currency  was  being  maintained  star- 
tionary. 

§  47.  1875  shows  falling  imports  and  exports,  stationary 
currency,  and  slightly  rising  discounts.  This  year  the 
resumption  act  was  passed,  causing  reduced  currency  and 
discounts,  rapidly  failing  prices,  increased  exports,  decreased 
imports,  and  increased  stock  of  bullion.  The  retention  of 
our  own  products,  and  enormous  importation  from  1870  to 
1873,  kept  prices  down.  Now  the  large  exportation  would 
indicate  a  rise  in  prices,  and  effectually  contradicts  the  theory 
that  a  surplusr.ge  of  goods  produced  the  fall  in  prices. 
The  fall  must  therefore  be  due  to  the  reduced  supply  of  cur- 
rency and  credits,  or  to  a  rise  in  the  value  of  money. 

In  conclusion,  the  multiple  standard  has  jjroven,  with  but 
few  exceptions,  a  correct  basis  for  the  measurement  of  money. 
In  1847  a  famine  demand  in  Europe  raised  the  value  of  mer- 
chandise, and  during  the  war  the  unusual  home  demand  pro- 
duced a  similar  effect.  Alluding  to  a  former  illustration,  it 
is  as  though  an  ebb  tide  had  lowered  the  general  level  of  the 
water  at  those  times.  The  line  showing  the  fluctuations  of 
the  unit  is  therefore  correct,  with  the  exception  of  the  year 
1847  and  the  period  from  1860  to  1864  inclusive,  when  they 
should  be  raised  somewhat.  Coin  is  affected  to  the  greatest 
extent  by  eximnsion  and  contraction  of  bank  paper,  by  the 
presence  of  bank  credits  and  legal  tender,  and  also  by  the 
gold  mines,  hoarding,  and  export  of  government  bonds. 

§  48.  The  rise  of  prices  in  1880  is  accounted  for  by  the 
increased  loans  and  discounts,  and  currency,  and  speculative 
impulse  given  to  business  by  payments  from  the  United 
States  Treasury. 


CHAPTER  yil. 

EXPEKIMENTS. 


§49.  Having  discussed  the  philosophy  of  money,  it  now 
remains  to  discover  if  this  philosophy  has  been  tested  by 


64  THE  SCIENCE  OF  MONEY. 

experience.  The  opponents  of  Government  paper  money- 
point  exultingly  to  every  issue  of  paper  that  has.  become 
worthless,  and  claim  that  these  failures  are  proof  positive 
that  a  Government  paper  money  will  never  succeed  in  any 
form.  They  admit  that  bank  paper  will  utterly  fail  unless 
certain  rules  are  observed  in  its  issue  and  management,  and 
even  if  the  best  known  rules  are  observed,  they  concede  it  to 
be  imperfect,  and  merely  the  best  that  can  be  done.  Mr. 
Sumner  makes  the  following  concession,  which  ought  to 
make  the  bullionists  more  modest,  and  less  hopeful  for  their 
resumption  and  specie  basis  schemes  in  this  country: 

*"The  question  liow  to  ^•e^'it^Za^e  a  couvertible  currency  is  still 
hotlj''  disputed,  and  is  far  from  a  solution.  It  seems  tliat  art  can 
help  nature  here  as  well  as  elsewhere,  but  we  may  be  very  sure 
that  it  can  so  help  here  only  as  it  does  elsewhere — by  following 
and  assistin.a:,  and  not  supplanting  and  coercing. 

A  convertible  currency  is,  like  steel,  not  a  natural  product,  but 
an  artificial  development,  and  in  many  respects  superior;  but  it  is 
as  if  we  had  not  yet  discovered  the  law  by  which  to  make  the 
artificial  product  so  that  it  should  be  neitlier  too  brittle  nor  too 
elastic,  too  hard  nor  too  soft  One  thing  is  very  certain,  that  our 
blundering  experiments  have  hitherto  cost  us  far  more  than  we 
have  gained  or  saved." 

Henrj'  V.  Poor,  another  American  authority,  and  one  who 
stands  well  with  the  anti-paper-money  school,  says: 

:j:"But  convertibility  of  issue  may  have  no  relation  whatever 
to  propriety  of  issue.  A  person  may  be  able  to  pay  a  bill  he  has 
uttered;  but  by  so  doing  he  may  strip  himself  of  every  dollar  he 
possesses.  The  question,  therefore,  far  in  advance  of  converti- 
bility, and  which  is  the  only  one  important  to  be  considered,  is 
the  manner  in,  or  cost  at  which,  convertibility  is  to  be  secured. 

*  *  *  How  to  create  a  currency  which  shall  at  all  times 
be  convertible  without  drawing  capital  from  its  issuers,  and  with- 
out creating  disturbance  in  monetary  and  financial  ciicles,  is  a 
problem  no  nearer  solution  than  it  was  a  hundred  years  ago." 

§  50.  From  the  principles  of  the  cause  and  measurement 
of  values,  we  can  deduce  the  conditions  necessary  to  a  proper 
issue  of  paper  money:  and  tlie  question  here  arises,  have 
these  conditions  been  tested  by  experience?  In  consulting 
history,  we  are  met  with  the  strange  fact  that  the  usual  order 


*  Sumner's  Hist.  Am.  Cur.,  p.  308. 
t Money :  Its  Laws  and  Hist.,  p.  224. 


EXPERIMENTS.  65 

of  development  lias  been  more  or  less  reversed  in  the  case  of 
money.  We  find  there  has  always  been  more  or  less  force 
«xerted  to  prevent  a  fair  trial  of  paper  money.  This  comes 
from  a  class  of  men  known  as  the  Money  Power. 

The  earliest  coinage  of  money  is,  of  course,  so  veiled  in  the 
obscurity  of  the  past,  that  little  is  known  of  the  conditions 
under  which  it  was  issued.  By  making  one  kind  of  merchan- 
dise a  legal  tender,  its  value  is  thus  made  to  rise  and  fall  in- 
versely as  prices  rise  and  fall.  By  authorizing  individuals  or 
private  corporations  to  issue  substitutes  for  mone,y,  they  are 
enabled  to  get  something  for  nothing,  by  drawing  interest  on 
what  they  owe.  By  these  acts  of  unsound  legislation  the 
money  power  was  called  into  existence,  and,  by  exercising  the 
power  thus  conferred,  it  is  enabled  to  interfere  with  a  func- 
tion of  the  Government,  and  change  the  value  of  money  by 
their  issues,  thus  changing  the  value  of  all  contracts  to  pay 
money.  The  class  of  men  who  profit  by  this  state  of  affairs 
strenuously  resist  any  change,  and  there  has  always  been  a 
stubborn  contest  between  them  and  the  progressive,  patriotic 
element,  especially  in  America. 

Debased  coins  and  representative  money  have  been  issued 
by  various  governments,  but  no  proof  exists  that  any  ade- 
quate restriction  was  placed  upon  the  supply  to  regulate 
their  value.  In  most  cases  they  operated  as  a  sort  of  forced 
loan  on  the  part  of  the  Government,  and  depreciated  in  pro- 
portion as  their  issue  changed  the  ratio  between  the  amount 
of  money  and  goods  in  the  market. 

§  51.  The  first  public  bank  in  modern  Europe  of  which 
we  have  any  record  was  the  Bank  of  Venice,  established  in 
the  twelfth  century. 

The  Bank  of  Venice  originated  in  a  forced  public  loan, 
raised  to  tit  out  a  fleet,  and  is  the  first  example  of  a  public 
funded  debt.  The  persons  assessed  were  then  organized  as  a 
company  for  the  protection  of  their  common  concern,  and 
for  the  receipt  of  interest.  As  this  organization  acquired 
more  the  form  of  a  bank,  those  who  held  a  claim  against  the 
Government  upon  its  books  were  allowed  to  transfer  it  in 
whole  or  in  part.  As  this  mode  of  making  payments  became 
more  desirable,  the  Government  reduced  the  rate  of  interest, 

5 


66  THE  SCIENCE  OF  MONEY. 

until  finally  it  paid  no  interest  at  all.  It  also  sold  for  cash 
inscriptions  of  credits  on  the  bank  books.  These  inscriptions 
were  simply  an  evidence  of  the  amount  of  credit  »vhich  the 
buj'er  could  tninsfer,  but  for  which  he  could  never  demand 
the  cash.  This  hank  had  also  a  safe  dei)Osit  department, 
where  coin  could  be  deposited,  and  when  desired  drawn  again. 
To  illustrate:  A  takes  to  the  bank  a  bag  of  coin  of  all  sorts,, 
sizes,  and  nationalities.  He  may  deposit  it  for  safe  keeping 
and  draw  it  again  at  will.  Or  he  may  buy  with  it  an  inscrip- 
tion of  credit.  In  the  latter  case  his  coin  is  weighed,  its. 
value  calculated,  an  entry  m;ide,  and  A  goes  away  from  the 
bank.  He  has  lost  his  coin  forever.  He  cannot  demand  it 
again.  The  bank  transfers  the  coin  to  the  Government  as  so^ 
much  internal  revenue,  and  by  the  Grovernment  it  is  paid  to 
its  servants,  thus  finding  its  waj^  back  again  into  the  chan- 
nels of  trade.  Meandme.  A  wishing  to  pay  B  fifty  dollars, 
assigns  or  transfers  to  him  fifty  dollars  of  his  bank  account. 
A's  account  is  then  fifty  smaller,  while  B's  is  fifty  larger.. 
B  cannot  draw  the  fifty  dollars  in  cash,  but  can  transfer  it 
to  C  in  payment  of  a  claim  which  C  holds  against  him. 
These  inscriptions  held  their  value  while,  owing  to  the  wear 
and  clipping  to  which  thev  were  subjected,  the  coin  gradually 
became  debased,  until  the  Government  fixed  the  rate  of  dis- 
count on  the  coins  at  20  per  cent.  At  par  with  the  actual 
value  of  coin,  these  inscriptions  continued  a  currency  irre- 
deemable in  coin,  but  notwithstanding  a  currency  that  re- 
mained in  use  at  20  per  cent,  aboxe  the  face  value  of  coin 
for  over  400  years  without  a  panic  until  Napoleon,  with  con- 
quering hoof,  rode  roughshod  over  Venice  and  destroyed  her 
in:.titutions.  The  credits  of  the  bank  were  lost  to  the  holder; 
they  were  not  gained  to  the  invader. 

The  Bank  of  Venice  was  founded  upon  the  correct  specie 
basis  plan.  By  issuing  a  credit  currency  which  cost  coin,, 
but  which  could  not  call  coin  on  douini'd,  while  at  the  same 
time  returning  the  coin  to  the  chuiiKcls  of  trade,  the  irre- 
deeniiihle  credit  currency  was  prevented  from  depreciating 
below  gold  or  breeding  a  panic,  and  the  gold  was  rendered  as- 
stable  as  possible.  The  gold  deposited  on  call  was  never  used 
for  loan  or  discount  purposes.     Thlv  iud;'ced,  to  u  large 


EXPERIMENTS.  6t 

extent,  cash  transactions,  by  preventing  any  possilMlity  of 
borrowing  bank  funds.  So  long  as  credit  at  the  bank  must 
be  purchased  with  coin,  it  could  not  fall  below  coin  or  its 
first  cost.  If  the  inscriptions  rose  above  their  normal  value, 
gold  flowed  in  until  they  returned.  If  they  fell  below,  no 
more  w^ere  bought  until,  from  a  scarcity  in  the  market,  they 
again  rose.  They  could  not  breed  a  panic,  for  they  were  not 
promises  to  pay,  on  demand,  gold  which  Avas  not  to  be  had. 
They  did  not  depreciate  gold  by  inflating  the  currency,  for 
every  dollar  in  inscriptions  had  cost  a  dollar  in  gold,  ;ind  was 
just  as  good  as  gold  as  a  debt  payer.  It  is  only  in  this  way 
that  a  permanent  public  debt  can  become  a  blessing.  While 
serving  as  a  medium  of  exchange,  without  drawing  interest, 
it  is  put  to  good  use  at  a  cost  only  sufficient  to  create  it. 

Some  have  confounded — whether  purposely  or  otherwise — 
the  deposit  with  the  issue  department.  The  certificates  of 
deposit  were  convertible.  They  represented  cash  that  was 
not  only  placed  in  the  bank,  but  was  left  there  and  could  be 
had  at  any  time.  The  inscriptions  cost  gold,  but  could  never 
call  gold.*  Although  called  a  bank,  its  issue  was  really 
government  paper,  and  its  operation  was  for  the  benefit  of 
the  public  treasury. 

Darwin's  law  of  selection  and  survival  is  limited  to  those 
changes  Avhich  take  place  independent  of  the  self-interest  of 
man,  or  to  those  where  the  self-interest  of  man  is  in  the  direct 
line  of  improvement.  When  the  interest  of  any  influential 
class  of  men  is  opposed  to  improvement,  self-interest  gener- 
ally, for  a  time  at  least,  prevents  the  selection  and  survival  of 
the  fittest.  This  afi'ords  a  sufficient  clue  to  the  strange  fact, 
that  this  Venetian  Bank  was  operated  upon  more  equitable 
and  scientific  principles  than  any  system  that  has  since 
obtained.     Its  success  was  unparalleled. 

§  52.  The  Bank  of  Amsterdam  was  r(uite  similar  to  the 
Bank  of  Venice,  but  when  its  paper  Avas  in  excess,  it  was 
contracted  by  purchase  Avith  coin.  It  secretly  loaned  nearly 
all  of  its  coin,  however,  and  the  currency  (although  vrry  well 
reo-ulated  to  conform  to  coin)  resting  upon  confidence,  and 


*For  a  derailed  account  of  the  Venetian  Bank,  sec  "  Ways  and  Means  o£  Pay- 
ment "  by  Mr.  Col  well. 


98  THE  SCIENCE  OF  MONET. 

lacking  the  legal  function  of  money,  was  supplanted  eventu- 
ally by  legal  money,  as  confidence  became  shaken  by  the  dis- 
covery of  the  weakness  of  the  bank.  The  Bank  of  Amsterdam 
issue  could  easily  have  been  sustained  had  it  been  made  a  legal 
tender,  but  being  accepted  on  confidence,  it  could  be  dropped 
by  creditors  whenever  they  felt  so  disposed. 

§  53.  The  Bank  of  England  was  the  first  to  introduce  the 
dangerous  feature  of  giving  its  own  notes,  payable  on  demand, 
for  the  notes  of  individuals  payable  in  the  future,  and  it 
carried  notes  due  at  a  future  time  to  the  credit  of  its  cus- 
tomers the  same  as  cash.  "It  issued  its  notes  payable  to  bearer, 
without  indorsement,  and  in  such  denominations  that  they 
became  a  currency,  and  came  to  do  what  no  note  ever  ought 
to  do — cancel  debt  without  recourse  when  passed  from  one  to 
another.  This  bank  introduced  the  process  of  issuing  notes 
based  on  nothing  in  hand,  and  loaning  its  deposits  as  described 
in  the  preceding  chapter. 

Its  notes  were  issued  upon  the  plan  so  common  since  of 
coin  for  paper  on  demand,  trusting  to  a  return  of  the  paper 
for  conversion  as  a  regulator.  This  is  the  direct  opposite  of 
the  Venetian  system,  although  both  rest  upon  specie  as  a 
basis.  The  Venetian  is  the  best,  the  English  the  worst 
possible,  and  all  combinations  of  the  two  are  intermediate  in 
character. 

The  English  bank  also  introduced  the  scheme  of  issuing 
notes  upon  government  bonds.  This  pledges  the  public  credit, 
and  binds  the  community  as  indorsers  to  procure  the  "basis'' 
when  it  is  wanted.  This  scheme,  pure  and  simple,  is  now 
being  tested  by  experiment  in  this  country,  and  the  result 
will,  no  doubt,  be  interesting  to  those  acquainted  with  the 
history  of  banking.  It  has  been  a  part  of  several  other  bank 
schemes,  and  is  a  cunning  device  of  the  money  power  that 
will  appear  more  fully  when  we  reach  the  "  Natiohal  Banking 
System."'  By  law,  in  1797,  the  Bank  of  England  suspended 
specie  payment,  and  its  notes  were  unlimited  in  their  issue 
by  statute  law.  They  were  not  explicitly  made  a  legal  tender, 
but  penal  laws  amounting  to  the  same  thiug  were  passed.  It 
was  enacted  that,  if  a  debtor  offered  these  notes,  he  was  to 


EXPERIMENTS.  89 

be  free  from  distraint,  and  it  was  further  made  a  misdemeanor, 
to  buy  or  sell  guineas,  or  trade  in  gold  or  silver  at  other  than 
legal  rates.  The  bank  during  suspension  continued  to  dis- 
count good  bills  for  real  transactions  at  their  former  rate  of 
discount,  five  per  cent.  If  discounting  for  real  transactions 
would  not  breed  a  panic  during  specie  payments,  it  would 
not  cause  an  inflation.  But  gold  rose  to  a  premium  in  the  notes, 
and  inflation  continued  up  to  1814.  In  this  case  the  theory 
had  a  fair  test.  '  Creditors  who  had  secured  vast  amounts  of 
bonds  with  depreciated  paper,  clamored  for  resumption  by 
contraction.  Bankruptcy  and  ruin  followed.  The  bank 
resumed  specie  payments  in  1821,  and  from  that  time  until 
1841  convertibility  as  a  regulator  was  fairly  tried  again.  This 
resumption  and  contraction  changed  the  value  of  the  mone- 
tary unit,  thus  vitiating  all  contracts  in  favor  of  the  creditor 
class,  which  usually  has  the  most  influence  with  governments. 
One  Mr.  Guernsey  (a  banker,  by  the  way)  opposed  resumption 
on  account  of  the  effect  of  contraction,  and  wanted  the  coin 
standard  lowered  to  the  par  of  paper.  This,  of  course,  would 
prevent  the  robbery  of  debtors,  consequently  Mr.  Guernsey 
seemed  to  get  but  little  hearing.  The  Government  had  con- 
tracted a  vast  debt,  the  unit  of  which  was  the  value  of  these 
inflated  notes.  A  still  greater  amount  of  private  debts  pay- 
able in  them  had  been  made,  and  the  coin  had  not  been  the 
basis  of  any  contract  to  pay  money  since  1797.  Mr.  Guern- 
sey's proposition  was  simply  to  bring  the  pound  out  of  use 
to  par  with  the  one  in  use,  and  make  it  the  basis  of  all  con- 
tracts. This  course  would  have  been  fair,  equitable,  and 
right  to  both  debtors  and  creditors. 

§  54.  As  America  has  just  been  through  the  same  process 
of  suspension,  inflatiou,  contraction,  and  resumption,  certain 
facts  connected  with  this  period  in  British  history  are  of 
special  interest.  There  appears  to  have  been  four  distinct 
periods  in  each:  first,  suspension;  second,  the  termination  of 
inflation;  third,  a  near  approach  to  par  while  yet  in  suspen- 
sion; fourth,  resumption  at  par.  Between  the  first  and 
second,  we  find  inflation;  between  the  second  and  third,  slight 
contraction;  between  the  third  and  fourth,  more  contraction 


70 


THE  SCIENCE  OF  MONET. 


than  before.     Below  we  give  a  table  showing  the  bank-note 
circulation  and  the  gold  premium  at  each  period. 


Bank  of  Eng- 

Country  Bank 

Gold 

land  notes. 

notes. 

Total. 

Premium. 

1797 

Suspension 

Inflation 

£    10,500,000 

£      7,000,000 

£    17,500.000 
31,500.000 

none 

1814 

End  of  Inflation 
Contraction 

25,000,000 

24,000,000 

49,000,  00 
7,000.000 

.29 

1817 

Xear  Par 

Contraction 

27,000,000 

15,000,000 

42,000,000 
14,000,000 

.02 

1821 

lies  u  in  pt  ion 

18,000,000 

10,000,000 

28,000,000 

none 

At  the  time  of  su.-^pension  there  was  estimated  to  be  in  the 
kingdom  £22,500,000  of  coin.  The  Bank  of  England  had 
£6,000,000  reserves,  and,  supposing  the  country  banks  had  a 
like  amount  in  proportion  to  circulation,  they  would  hold 
£4,000,000  more,  making  £10,000,000  held  in  bank,  having  in 
active  use  £12,500,000.  This,  added  to  the  note  circulation, 
gave  a  total  currency  of  £30,000,000.  Immediately  upon 
suspension,  the  coin  went  out  of  circulation  at  a  slight  pre- 
mium, and  the  vacuum  was  filled  by  paper  before  any  further 
effect  could  be  produced.  We  find  the  Bank  of  England 
notes  were  increased  in  amount  to  £21,000,000  in  1806,  and 
prices  of  commodities  had  not  advanced.  The  premium  on 
gold  was  only  2  per  cent.,  and  the  note  currency  of  all  the 
banks  was  at  that  time  over  £35,000,000.  This  seemed  to  be 
the  point  of  saturation,  and  the  increase  from  this  to  £49,- 
000,000,  in  1814,  was  followed  by  a  premium  of  29  per  cent, 
on  gold.  A  part  of  this  result  might  have  been  due  to  an 
actual  rise  in  the  value  of  gold  itself.  In  writing  of  the 
commercial  situation,  Sumner  says  : 

*"In  1814  peace  was  restored,  and  it  was  believed  that  com- 
merce must  at  once  revive.  Anticipating  this,  enormous  ex- 
portations  were  made  to  the  Continent  and  to  the  United  States. 
Tlie  shippers  found  to  their  cost,  when  it  was  too  late,  that  the 
effective  demand  on  the  Continent  for  colonial  produce  and  British 
manufactures  had  been  greatly  overrated,  for,  whatever  m?ght  be 
the  desire  of  the  foreign  consumers  to  possess  articles  so  long  out 
of  their  reach,  they  were  limited  in  tlieir  means  of  purchase,  and, 
accordingly,  the  bulk  of  the  commodities  exported  brought;  very 
inadequate  returns.  TJiey  found  that  it  is  impossible  to  'inun- 
date' a  country  with  foreign  commodities,  or  to  'drain  off  its 

*  Sumner's  Hist.  .Vm.  (^ur.  p.  283. 


EXPERIMENTS.  *ll 

liullion"  by  foreign  trade,  if  it  does  not  want  to  be  drained.  As 
for  a  true  exchan^-e  of  goods,  the  laws  hampered  it  by  all  sorts 
of  restrictions  and  prohibitions." 

The  want  of  success  of  exporters  would  indicate  conditions 
favorable  to  a  rise  in  gold,  for  if  nations  did  not  want 
British  goods,  they  would  be  sure  to  want  British  gold  in 
inverse  ratio. 

From  1814  to  1817  the  contraction  of  bank  notes  amounted 
to  only  £7,000,000,  while  the  premium  on  gold  fell  to  2  per 
cent.     An  attempt  was  now  made  by  the  bank  to  resume. 

It  was  supposed,  and  ably  argued  in  Parliament,  that  if 
£7,000,000  of  contraction  had  reduced  the  premium  27  per 
cent.,  very  little  more  contraction  would  remove  the  remain- 
ing 2  per  cent,  premium  on  gold.  The  table  shows,  how- 
ever, that  it  took  <£11:,000,000  more  of  contraction  to  remove 
the  remaining  2  per  cent.  It  was  found  that  bringing  paper 
to  par  and  resuming  specie  payments  were  two  very  different 
things.  By  a  contraction  of  the  paper  it  rapidly  rose  in 
value.  There  being  a  constant  demand  for  money,  every  in- 
crement of  restriction  in  the  supply  produced  a  correspond- 
ing increase  in  value.  Since  suspension  there  had  been  no 
demand  for  gold  as  money,  and  its  value  might  be  considered 
stationary.  With  coin  stationary  and  paper  advancing,  a 
par  between  the  two  was  soon  reached.  But  the  first  attempt 
to  exchange  paper  fo.-  gold  caused  a  new  demand  for  gold, 
by  giving  it,  to  the  extent  of  the  conversion,  a  new  use. 
This  new  demand,  unless  met  by  an  increase  of  supply, 
would  give  gold  a  new  value,  and  consequently  a  premium. 
The  level  of  gold  now  rising,  in  order  that  paper  might  be 
kept  at  par  with  the  gold,  a  further  contraction  of  paper 
"was  necessary.  As  fast  as  paper  reached  the  par  of  gold, 
continued  attempts  to  resume  caused  the  par  of  gold  to  re- 
treat. This  was  continued  until  contraction  of  currency, 
through  contraction  of  the  productive  industries,  and  an 
influx  of  gold  reduced  the  demand  for  money  to  such  an  ex- 
tent that  the  available  gold  supplied  the  demand  when  re- 
sumption took  place.  As  we  have  seen,  the  Bank  of  England 
bi'ought  paper  nearly  to  par  with  £7,000,000  of  contraction, 
and  then   by   attempted  resumption  caused  paper  to  chase 


72  THE  SCIENCE  OF  MONET. 

the  retreating  par  of  gold  through  £14,000,000  more  of  con- 
traction. 

Upon  going  into  suspension,  in  1797,  the  circulation  con- 
sisted of  £17,500,000  of  notes  and  £12,500,000  of  coin.  Dur- 
ing inflation  the  circulation  reached  £49,000,000,  producing 
a  premium  of  29  per  cent,  on  gold.  By  a  contraction  to 
£42,000,000,  the  notes  were  brought  to  par.  There  was  now 
a  demand  for  £42.000,000  of  currency  as  against  the  former 
demand  of  £30,000,000  when  notes  were  at  par  in  1797. 
Attempts  to  resume  now  caused  paper  to  chase  the  par  of 
gold  until,  in  1821,  the  currency  was  reduced  to  £28,000,000, 
or  two-thirds  of  its  normal  amount.  Resumption  now  took 
place  and,  as  we  have  seen,  could  have  been  caused  only  by 
a  contraction  of  business  or  an  increased  supply  of  gold. 
History  relates  that,  from  1817  to  1821,  prices  fell  one-third, 
and  it  would  seem  that  resumption  was  brought  about  by  a 
contraction  of  business.  At  suspension  the  circulation 
amounted  to  thirty  millions;  at  resumption  to  twenty-eight 
millions. 

§  55.  As  the  prostrated  people  recovered,  the  bank  again 
inflated  the  currency  now  convertible  into  coin  on  demand, 
and,  in  1825,  another  panic  came.  Had  the  bank  pursued  the 
usual  course  of  contracting  its  currency  and  protecting  itself, 
this  panic  would  have  been  much  worse.  It  supplied, 
instead,  all  the  facilities  possible  for  the  cancellation  of  pri- 
vate debts,  and  at  the  risk  of  ruin,  issued  a  large  quantity  of 
small  notes  and  discounted  to  all  solvent  parties.  Instead  of 
settling  wheat  contracts  with  wheat  contracts  by  a  process 
of  liquidation,  it  brought  forward  all  the  wheat  (or  that 
which  would  answer  the  purpose)  that  it  could.  .  It  avoided 
becoming  a  buyer  and  hoarder  of  gold  itself.  It  lost  the 
bulk  of  its  basis,  but  in  a  great  measure  saved  the  people 
from  confiscation  for  debt. 

Parliament,  evidently  distrusting  the  regulating  p»ower  of 
convertibility,  now  prohibited  the  issue  of  all  notes  under  £5, 
but  the  bank  again  inflated  its  convertible  notes  and,  in 
1837,  another  collapse  followed. 

During  this  period  the  United  States  Bank  had  also  been 
inflating,  and  each  operated  to  aid   the  other  on  principles 


EXPERIMENTS.  78 

heretofore  shown.  Now  each  served  to  enhance  the  trouble. 
The  bank  circulation  of  the  United  States  was  "  specie  basis  " 
regulated  by  convertibilit}'.  In  1820  it  w^as  ^44,863,352,  and 
in  1837,  $149,185,890.  The  flow  of  gold  to  England  col- 
lapsed this  fabric,  and  a  panic  ensued  of  which  Ave  will  speak 
hereafter. 

Joint  stock  banks  had  been  forming  all  over  the  British 
Kingdom,  using  the  Bank  of  England  notes  as  a  basis,  some- 
what after  the  present  "  compound  inflation ""  plan  in  this 
country.     This  aggravated  the  inflation. 

There  is  one  fact  here  of  importance.  In  the  United 
States,  silver  had  been  practicall}'  demonetized,  while  in 
France  it  was  the  standard.  While  America  was  plunged 
into  a  panic  by  a  drain  of  gold,  France  was  undisturbed  and 
safely  parted  with  gold  to  aid  England.  This  example  shows 
that  a  domestic  currency,  to  be  safe,  should  not  be  based  on 
the  "  money  of  the  world,"  liable  to  be  called  away  by  the 
folly  or  mismanagement  of  a  foreign  bank. 

§  oQ.  Parliament  now  put  less  faith  than  before  in  con- 
vertibility and  reorganized  the  bank,  separating  the  issue 
department  from  the  other  and  making  the  issue  a  ''  mechan- 
ical matter,"  by  adopting  a  system  that  was  a  sort  of  com- 
pound of  the  convertible  and  Yenetian  plans.  The  joint 
stock  banks  were  prohibited  any  further  issue  and  compelled 
to  withdraw  their  circulation  at  the  expiration  of  their  chart- 
ers. The  Bank  of  England  notes  might  be  issued  at  pleasure 
to  a  certain  limit,  but  all  in  excess  of  the  fixed  amount  was 
to  be  issued  for  bullion  on  demand,  like  the  Venetian  money. 
But  here  the  likeness  ends,  for  they  were  all  to  be  convertible 
on  demand.  This  of  course  made  it  profitable  for  any  holder 
of  notes  to  get  his  coin  whenever  it  rose  in  value  above  the 
note,  and  the  "run  and  panic,"  like  Banquo's  ghost,  would 
not  "down." 

As  the  issue  of  its  notes  was  no  longer  a  matter  of  option, 
the  managers  of  the  bank  resorted  to  changing  the  rate  of 
discount  to  keep  the  necessary  bullion  for  redemption  on 
hand.  They  changed  this  rate  forty-eight  times  in  thirteen 
years,  ranging  from  2  to  10  per  cent.,  and  on  three  different 
occasions  they  changed  it  twice  on  the  same  day. 


74  THE  SCIENCE  OF  MONEY. 

§  57,  In  18i7,  having  compounded  its  deposits  as  described, 
and  a  shortage  of  crops  and  potato  famine  in  Irehmd,  ren- 
dering it  impossible  to  export  goods  as  profitably  as  coin,  the 
bank  creditors  attempted  to  realize  on  their  deposits,  and  a 
panic  was  the  result.  Prices  were  low  in  Araeric-i  at  that 
time,  and  the  currency  being  contracted,  the  result  was  an 
export  of  merchandise  to  England.  In  1857  there  was 
another  flurry,  the  bank  changing  its  rate  of  discount  eleven 
times  in  nine  months. 

In  1866  still  another  panic  occurred,  and  the  United  States 
sent  to  England  §45,000,000  of  gold  (in  like  manner  as 
France  had  sent  it  during  the  panic  of  1837),  like  any  other 
commodity,  without  disturbing  the  currency,  which  was  not 
then  based  upon  coin. 

In  writing  of  this  system,   John   Stuart  Mill   makes  the 

following  sensible  remarks: 

*  Tlie  value  saved  to  a  community  by  thus  dispensing  with  me- 
tallic currency  is  a  clear  gain  to  those  who  provide  the  substitute. 
They  have  the  use  of  a  circulating  medium  which  has  cost  them 
only  the  expense  of  an  engraver's  plale.         *        *        *         * 

The  exclusive  privilege  of  issuing  them  if  reserved  to  the  Gov- 
ernment or  to  some  one  body,  is  a  source  of  great  pecuniary  gain. 
That  this  gain  should  be  obtained  for  the  nation  at  large  is  both 
practicable  and  desirable ;  and  if  the  management  of  a  bank-note 
currency  ought  to  be  so  completely  mechanical,  so  entirely  a  thing 
of  hxed  rule,  as  it  is  made  by  tlie  act  of  1844,  there  seems  no  reason 
why  this  mechanism  siiould  be  worked  for  the  profit  of  any  pri- 
vate issuer  rather  than  for  the  public  treasury. 

If,  however,  a  plan  be  preferred  which  leaves  the  variations  in 
the  amount  of  the  issues  in  any  way  to  the  discretion  of  the  issuer, 
it  is  not  desirable  that  to  the  evei'  growing  attributes  of  the  Gov- 
ernment so  delicate  a  function  should  be  superadded. 

The  British  Government  did  not  prefer  such  a  plan,  for 
they  had  seen  the  folly  of  depending  upon  mere  converti- 
bility as  a  regulator. 

Why  did  not  England  adopt  the  Venetian  plan  in  full? 
It  would  be  ''specie  basis"  and  safe.  We  can  give  but  one 
reason.  It  would  not  be  operated  for  the  bencjit  of  private 
corporal  mi  f<. 

This  Bank    of  England   is   pointed   out   with    pride  as  a 

•  J.  S.  Mill,  I'rinci])los  of  I'ol.  Kooii..  p.  :<«3. 


FRENCH  FINANCES.  75 

marvel  of  strength  in  a  time  of  panic,  because  its  notes  are 
always  convertible.     In  writing  of  this,  H.  V.  Poor  says  ; 

*''The  notes  of  the  Bank  of  England  have  been  uninterruptedly 
converlible  for  the  last  fifty-live  years;  yet  the  fear  that  they 
niiglit  not  be  convertible  has.  during  tliat  whole  period,  ke])t  the 
public  mind  in  constant  agitation,  and  has  often  culminated  in 
panics,  which  caused  ruin  and  dismay  throughout  the  land." 

Its  chief  merit  lies  in  the  fact  that  the  Government  comes 
to  the  rescue  in  time  of  panic,  and  authorizes  a  suspension 
of  the  Bank  Act  of  1844,  thus  permitting  the  bank  to  inflate 
instead  of  c^ontract  its  issues,  as  is  usual  in  a  commercial 
crisis. 


CHAPTER  VIII. 

FKENCH   FINAIirCES. 

§  58.  John  Law's  scheme  of  the  Land  Basis  is  very  plaus- 
ible. It  is,  substantially,  that  notes  should  be  issued  as  a 
circulating  medium^  convertible,  on  demand,  into  a  certain 
amount  of  land. 

The  value  of  the  land  would  depend,  of  course,  upon  the 
circumstances  of  supply  and  demand.  It  would  be  a  produc- 
tive investment,  however,  like  an  interest-bearing  bond.  It 
would  virtually  be  saying  to  the  people:  'Mf  you  don't  want 
this  money,  here  is  land  instead,"  thus  forcing  land  upon  the 
market  to  the  extent  of  the  inflation.  If  this  scheme  should 
be  adopted,  and  the  issue  governed  by  the  demand  for  con- 
version, it  would  operate  very  fairly.  The  fluctuations  of  the 
land  pledged  would  govern  the  fluctuations  of  the  currencJ^ 
Should  the  land  be  located  in  some  remote  i)art  of  the  world, 
or  otherwise  worthless,  the  money  based  upon  it  would  be 
very  likely  to  become  worthless  when  issued  m. excess. 

§  59.  The  French  assignat  is  claimed  to  be  an  experiment 
testing  this  scheme.  It  was  an  issue  of  this  kind  at  the 
outset,  and  it  is  acknowledged  that  up  to  the  point  when  it 
began  to  be  converted  into  land  by  the  holders,  it  did 
accomplish  all  that  was  claimed  for  it.     Instead  of  retiring, 

*  H.  V.  Poor  :  Money,  Its  Laws  and  Hist.,  p.  224. 


76  THE  SCIENCE  OF  MONEY. 

or  even  stopping  the  issue  at  tliat  point,  however,  as  the  plan 
contemplates,  it  was  recklessly  over-issued.  It  was  also 
counterfeited  to  an  alarming  extent.  This  excess  forced  all 
the  land  it  represented  into  the  market,  which,  any  one  can 
see,  would  depreciate  the  land,  and  lower  the  par,  paving  the 
way  for  further  inflation.  When  the  issue  had  reached 
1,200,000,000  francs,  conversion  rapidly  set  in,  and  within  a 
short  time  160,000,000  francs  was  presented  for  redemption. 
The  French  Government,  however,  pushed  the  inflation  up 
to  2,400,000,000  francs  within  two  years,  virtually  forcing 
1,200,000,000  francs'  worth  of  land  upon  the  market.  It 
was  no  wonder,  then,  that  the  land  and  paper  went  down  to- 
gether 30  per  cent,  as  compared  to  coin.  It  seems  that  gold 
is  no  better  than  land  in  this  respect.  By  collecting  for  im- 
ports, and  hoarding  gold  in  the  Treasury,  we  had  accumulated 
a  considerable  amount,  when  Congress  by  joint  resolution, 
approved  March  17,  1864,  authorized  the  Secretary  to  sell 
all  gold  in  excess  of  the  sinking  fund,  and  also  pay  interest 
a  year  in  advance.  The  value  of  gold  in  merchandise  fell 
from  125  to  77  in  less  than  two  years,  its  currency  price 
changing  from  250  to  141. 

From  the  point  at  which  the  paper  began  to  come  in  for 
conversion,  the  assignat  is  no  test  of  the  scheme,  because 
the  plan  was  not  adhered  to;  otherwise  success  must  have 
resulted,  equalling,  if  not  excelling,  the  specie  basis  plan. 

There  were  other  influences  of  no  small  account  brought 
to  bear  upon  this  money.  The  whole  force  of  priest  and 
nobility,  and  all  opposed  to  the  revolutionary  government, 
was  bent  toward  its  destruction.  There  was  in  London  alone 
seventeen  establishments  for  counterfeiting  it,  employing 
about  four  hundred  men  and  boys.  Suppose  there  were 
seventeen  establishments  in  New  York,  counterfeiting  Bank 
of  England  notes,  and  putting  them  afloat  in  England,  and 
vice  versa  in  London  counterfeiting  our  National  Bank  notes, 
— the  courts,  to  say  the  least,  winking  at  the  matter — what 
good  would  specie  basis  do  the  banking  system  of  either 
country.  In  a  state  of  society  where  tracks  would  be  torn  up 
by  competing  stage  men  until  trains  could  not  be  safely  run, 
we  might  argue  railroads  a  failure  and  stages  a  success — or 


FRENCH  FINANCES.  77 

the  destruction  of  looms  by  hand-weavers  might  furnish  the 
premises  for  like  conclusions:  but  what  would  sensible  people 
think  of  such  society,  or  such  arguments.  Paper  money 
would  not  be  likely  to  succeed  among  savages:  they  would 
prefer  the  "  intrinsic." 

An  excess  of  paper  upon  the  land  basis  plan,  would  always 
force  the  land  upon  the  market.  It  could  not  be  exported, 
hence  there  would  be  a  more  restricted  demand  for  it.  Depre- 
ciation would  follow  sooner,  and  less  paper  issues  would  occur 
before  conversion  would  set  in.  No  panic  could  result,  how- 
ever, because  of  the  visible  and  sufficient  supply  of  basis,  but 
the  principal  weakness  of  the  plan  would  be  in  the  fact  that 
land  is  not  a  product  of  labor,  and  does  not  depend  upon  the 
effort  necessary  to  its  production,  but  upon  monopoly  for  its 
value,  thus  making  changes  in  the  value  of  it  most  likely  to 
occur,  so  that  it  would  be  extremely  difficult,  if  not  impos- 
sible, to  regulate  the  value  of  such  a  currency. 

There  was  issued,  all  told,  48,474,992,000  francs  of  the  assig- 
nats.  With  their  goods  destroyed  and  consumed  by  war.  and 
such  a  volume  of  currency,  to  which  was  added  vast  amounts 
of  counterfeits,  no  wonder  it  became  worthless.  This  paper 
was  issued  at  a  time  when  the  very  foundations  of  society 
were  shaken  by  a  revolutionary  government,  which  was 
denounced  by  neighboring  nations  as  but  little  better  than  a 
howling  mob.  The  basis  of  this  currency  was  confiscated 
property,  the  title  to  which  was  likely  to  be  questioned, 
making  it  a  wonder  that  the  currency  was  ever  placed  in  cir- 
culation at  all.  The  nobility  had  fled  the  country,  carrying 
away  nearly  all  the  coin,  and  it  was  a  wise  and  proper  thing, 
under  the  circumstances,  to  resort  to  a  paper  currency.  As 
soon  as  the  land  began  to  be  converted,  however,  taxation 
should  have  supplied  further  revenues.  The  supplies  received 
for  it  were  taken  from  the  people  as  it  was.  Nothing  con- 
sumable was  created  by  making  assignats,  and  as  soon  as 
people  had  enough  of  them  to  serve  their  purpose,  they  began 
to  prefer  land.     That  was  the  time  to  stop. 

§  60.  The  present  system  in  France,  although  specie  basis, 
gives  rise  to  a  financial  practice  far  different  from  that  of  the 
United  States.     When  they  make  paper  money  they  make  it 


78  THE  SCIENCE  OF  MONEY. 

the  same  as  coin  before  the  law,  and  thus  keep  it  at  par  as 
long  as  possible;  we  partially  repudiate  our  issues  and  depre- 
ciate them  as  soon  as  possible.  When  they  wish  to  borrow^ 
they  strengthen  their  credit;  we  weaken  ours.  When  they 
wifeh  to  pay,  they  make  money  cheap;  when  we  wish  to  pay, 
we  '"fund"  and  contract,  make  money  dear,  and  strangle  pro- 
duction and  business.  When  they  want  to  get  gold,  they 
devise  substitutes,  so  they  can  get  the  gold  cheap;  when  we 
want  gold,  we  make  a  market  for  it  by  removing  substitutes 
from  use  and  forcing  its  value  up.  And  in  their  fuiancial 
affairs,  with  one  exception  of  specie  as  a  standard,  they  i're  as 
opposite  to  ns  as  are  the  Chinese  in  some  other  matters. 

g  61.  The  French  Govern  sv.ent,  upon  the  belief  that  prod  uctive 
industry  is  the  source  of  wealth,  pursues  the  policy  of  pro- 
tecting the  industrial  classes.  In  this  country,  since  the 
slave-holder  lost  control  of  the  Government,  it  has  been  con- 
trolled by  a  class  of  men  whose  God  is  speculation.  They 
loOiJ  with  contempt  upon  the  plodding,  productive  methods 
of  acquiring  wealth,  and  believe  in  big  speculations.  They 
do  not,  in  their  actions  at  least,  distinguish  between  (jetting 
wealth  and  making  it.  The  dominant  element  of  this  class 
are  the  dealers  in  money,  and  the  bank  of  issue  has  been  their 
head,  center,  and  fortress.  This  and  that  other  "  peculiar  insti- 
tution," slarerg,  were  brought  from  Europe  in  colonial  times. 
Both  are  systems  which  enable  men  to  take  that  which  does 
not  belong  to  them,  under  cover  of  law.  The  latter  has  been 
disposed  of  finally,  but  at  what  a  cost.  By  slavery,  men  were 
robbed  directly,  personally,  and  forcibly;  by  the  peculiar 
arrangement  of  money  already  explained,  the  same  is  done 
indirectly  and  collectively,  and  though  accomplished  by 
scientific  methods  more  refined,  yet  none  the  less  is  it  robbery. 
Tliis  latter  system  must  now  go,  or  liberty,  justice,  and  equal 
rights,  will  become  extijict  in  America.  In  this  virgin  soil 
was  planted  the  seeds  of  a  new  civilization,  and  with  them 
were  insinuated  those  of  noxious  weeds.  America  has  been 
and  will  continue  to  be  the  arena  in  which  the  battle  of 
progress  for  the  race  must  be  fought. 


COLONIAL  EXPERIENCE.  7& 

CHAPTER  IX. 

COLONIAL   EXPERIENCE. 

§  62.  When  white  men  first  entered  America,  they  found, 
among  the  Indians,  a  currency  now  known  as  wampum.  It 
was  worn  as  jewelry,  hence  was  merchandise,  and  cost  a  cer- 
tain amount  of  labor.  The  more  advanced  tribes  had  reached 
a  state  of  double  barter  with  this  kind  of  currency.  The 
colonists  were  poor  in  everything  but  resources;  the  crude 
supplies  of  nature  were  here  in  abundance,  but  all  the  mech- 
anism of  production,  transportation,  and  exchange  had  to  be 
supplied.  They  found  no  gold  nor  silver,  and  resorted  to  the 
money  of  the  Indians  for  domestic  trade.  It  would  not 
answer  for  foreign  trade,  however,  and  the  white  man  soon 
proved  his  superiority  (?)  by  counterfeiting  it.  Counterfeits^ 
if  not  prevented,  will  destroy  the  value  of  any  money. 

Money,  being  an  imported  article,  was,  on  that  account,, 
expensive,  and  with  their  vast  resources  it  was  the  part  of 
wisdom  to  put  as  little  real  capital  into  domestic  currency  as 
possible;  hence  the  colonists  very  properly  resorted  to  substi- 
tutes. Instead  of  issuing  a  paper  money  of  regulated  vol- 
ume, and  upon  scientific  principles,  they  resorted  to  barter, 
making  various  kinds  of  goods  a  tender  for  debts,  and,  of 
course,  if  a  great  variety  were  used  at  the  same  time,  the 
poorest  samples  of  the  kind  which  chanced  to  be  most  plen- 
tiful would  be  employed.  This  went  on  to  a  partial  exclu- 
sion of  coin  which  would  naturally  be  in  great  demand  for 
export,  owing  to  a  balance  of  trade  in  manufactured  articles 
against  them  because  of  their  undeveloped  industries. 

(An  exclusively  agricultural  community  is  like  the  half  of 
a  pair  of  shears,  the  manufacturing  industries  being  the 
other  half,  each  worthless  without  the  other,  and  the  nearer 
together  the  better;  hence  the  rivet  [channel  of  trade  between 
the  two]  should  always  be  short.) 

§  63.  In  1641  corn  was  almost  worthless,  and  the  colonists 
began  ship-building,  fishing,  and  lumbering.  In  trade  with 
the  West  Indies,  they  brought  in  silver,  and.  in  1652,  a  mint 
was  establislied  in  Boston,  and  the  Pine  Tj-oe  coinage  of 


80  IHE  SCIENCE  OF  MONEY. 

silver  became  the  first  American  coin.  Wampum  and  barter 
continued  by  law,  however,  until,  in  1654,  a  law  was  passed 
providing  for  the  payment  of  debts  in  kind,  resulting  in  gen- 
eral barter.  When  we  consider  that  materials  were  more 
needed  for  productive  purposes  than  for  exchanges,  it  seems 
but  the  part  of  wisdom  that  silver  should  be  exported  for 
such  tools  and  materials  as  might  be  needful,  and  recourse  be 
had  to  general  barter  as  a  substitute  for  currency. 

Their  society  was  so  limited  in  extent,  and  primitive  in 
style,  that  such  a  system  would  answer  a  very  good  purpose. 

§  64.  It  was  unhiwf ul  for  the  colonies  to  coin  money. 
Therefore,  when  a  debt  was  to  be  paid,  it  must  be  paid  in 
coin  imported  from  England;  and  upon  the  principles 
explained  in  a  previous  cliapter,  one  can  easily  understand 
the  situation  in  a  time  of  anything  like  general  settlement. 
Men  in  America,  by  making  debts  payable  in  kind,  availed 
themselves  of  the  barter  channels  of  escape  from  the  clutches 
of  the  money  changers  of  England.  The  policy  of  England 
was  to  manufacture  trade,  and  make  a  foi'ced  market  to  keep 
the  colonies  mere  dependencies,  and  pi'ohibition  of  coinage 
was  in  keeping  with  such  a  policy.  Forcing  them  to  import 
their  money  would  produce  the  same  effect  as  forcing  them 
to  import  any  other  necessary,  and  must  be  profitable  to 
England. 

§  65.  In  1690  an  .expedition  against  Canada  gave  rise  to  the 
first  Government  issue,  and  a  test  was  made  of  one  of  the 
principles  upon  which  Government  paper  circulates.  It  was 
made  receivable,  at  5  per  cent,  advance  over  coin,  at  the 
colonj"  treasury.  £40,000  were  first  issued,  and  afterwards 
£10,000  more,  an  annual  tax  providing  for  their  redemption. 
As  fast  as  they  were  received  they  were  destroyed,  not  re- 
issued. They  were  only  a  temporary  expedient,  and  were 
issued  in  fixed  amounts;  hence  they  were  no  test  of  a  regu- 
lated issue.  They  proved,  however,  that  receivability  for 
taxes  is  a  sufficient  Ijasis  for  an  issue.  In  170i)  a  legal  tender 
issue  of  similar  bills  ftjliovved.  These  were  issued  a  fixed 
amount,  and  being  in  excess  the}'  depreciated. 

§  66.  We  next  find  making  its  appearance  the  bank  of 
issue,  and  its  modern  form  of  paper  notes,  promising  coin  at 


COLONIAL  EXPERIENCE.  81 

a  future  time  on  demand.  These  schemes  were  entered  into 
both  by  the  colonial  governments  and  private  individuals; 
and,  upon  principles  already  explained,  they  proved  profita- 
ble. Notes  were  injected  into  circulation  on  confidence  or  b}' 
law,  and  no  well  settled  principles  of  value  were  observed. 
They  seemed,  however,  to  plant  the  seeds  of  the  "  peculiar 
institution,'"  and  men  learned  of  a  way  to  get  wealth  without 
making  it,  to  which  they  naturally  clung.  A  royal  edict 
prohibited  further  issues  without  charters. 

A  scheme  was  tried  of  loaning  an  indefinite  amount  of 
notes  on  land  at  a  fixed  rate  of  interest.  They  would,  of 
course,  issue  in  exchange  for  no  fixed  value,  nor  rest  on  con- 
fidence, and,  if  inflated  at  all,  must  induce  further  inflation.  A 
bank  on  land  security,  with  notes  redeemable  in  twenty  years 
in  merchandise,  was  tried.  If  needed,  such  a  currency  might 
answer  a  good  purpose;  in  the  presence  of  so  much  paper  it 
failed  of  course.  No  correct  system  of  government  money 
was  adopted,  and  the  "  colonial  policy  "  continued  in  force.  In 
pursuance  of  this  policy,  in  1763,  Parliament  declared  void 
any  colonial  acts  for  issuing  paper  money.  In  1773,  it 
allowed  the  issues  of  any  colony  to  become  a  tender  at  its  own 
treasury.  In  all  the  history  of  colonial  money  we  observe 
an  utter  ignoring  of  the  natural  laws  of  value;  and  those 
paper  issues  proving  profitable  to  the  issuers,  there  arose  a 
constant  struggle  to  see  who  could  issue  the  most  and  redeem 
the  least.  It  resulted  in  making  the  bank  of  issue  a  fixture 
in  this  country,  and,  although  the  motive  of  Great  Britain 
in  seeking  to  suppress  the  bank  of  issue  in  America  was 
wrong,  it  would  have  been  a  blessing  in  the  end  had  she  suc- 
<;eeded.  No  regulated  issue  was  attempted,  and  there  was 
merely  a  periodical  increase  regardless  of  all  economic  laws, 
with  the  usual  result,  more  or  less  depreciation  and  disorder. 

§  67.  The  idea  had  become  so  established  in  the  minds  of 
men,  that  issuing  bank  notes  was  a  legitimate  as  well  as  a 
profitable  business,  that  when  the  Constitution  was  being 
framed,  at  the  dictation  of  the  moneyed  power,  the  clause 
conferring  upon  the  General  Government  power  to  issue  bills 
of  credit  was  stricken  out,  Governeur  Morris  saying,  that  if  it 
was  not,  "  the  moneyed  interest  would  oppose  the  adoption  of 

6 


82  THE  SCIENCE  OF  MONEY. 

the  Constitution.'"  As  it  did  not  oppose  the  private  issues, 
which  had  heretofore  been^  to  say  the  least,  no  better  than 
thos«  of  the  Government,  it  is  evident  that  the  moneyed  in- 
terest ivas  contending  for  the  power  to  issue  them,  rather  than 
insisting  upon  any  objection  to  their  issue  as  some  have  sup- 
posed. 

§  63.  The  Continental  money  vras  an  excessive  issue  by  a 
loose  confederacy  of  states  bearing  but  little  semblance  to  a 
government,  and  the  only  wonder  is  that  it  eircuhited  at  all.. 
From  Storey  on  the  Constitution  the  following  is  taken: 

*  "The  leading  defects  in  the  confederation  were  the  following: 
Utter  want  of  coercive  autliority.  They  could  not  legislate 
directlj"  upon  persons.  Their  laws,  if  laws  they  might  be  called, 
were  without  any  penal  sanction.  They  could  not  impose  a  tine  or 
imprisonment,  or  even  suspend  officers  from  their  offices.  Had  no 
power  to  levy  taxes  or  collect  revenue.  After  the  peace  of  178::!,  the 
States  relapsed  into  utter  indilference  on  this  subject.  The  requi- 
sitions of  the  Continental  Congress  for  funds,  even  for  tlie  purpose 
of  enabling  them  to  pay  the  interest  of  tlie  public  debt,  were 
openly  disregarded;  and,  notwithstanding  the  most  affecting  ap- 
peals made  from  time  to  time  to  the  sense  of  patriotism,  the  sense 
of  duty  and  the  justice  of  the  States,  the  latter  refused  to  raise 
the  necessary  supplies. 

The  Continental  Congress  had  no  power  to  regulate  commerce 
"With  foreign  nations  or  among  tlie  States.  Foreign  nations  did 
not  fail  to  avail  themselves  of  the  advantages  accruing  to  them- 
selves by  this  suicidal  policy  tending  to  the  common  ruin." 

The  Confederation  promised  Spanish  milled  dollars  when. 
it  had  none,  and  could  not  levy  a  tax  to  get  them. 

The  value  of  Continental  money  depended  but  little  upon 
the  premise  to  pay  of  the  Confederation,  but  upon  what  legal 
tender  force  was  given  it  by  separate  State  authority.  How 
vigorously  this  was  done  may  be  judged  from  the  fact  that 
most  of  the  States  had  their  own  affairs  to  care  for,  and  also 
from  the  following  extract  from  a  letter  of  Gen.  Washington: 

"  The  great  business  of  war  can  never  be  well  conducted,  if  it  be 
conducts  1  at  all,  while  th-j  povvei-s  of  Congress  are  only  recom- 
mendatory. While  one  State  yields  obedience,  and  another  re- 
fuses it.  wliile  a  tliird  mutilates  and  adopts  the  measure  in  ])art 
only,  and  all  vary  in  time  and  manner,  it  is  s'^arcely  possible  that 
our  affairs  should  prosper,  or  that  any  thing  but  disappointment 

*  Storey  oil  the  (Jonstilution,  p.  SO, 


COLONIAL  EXPERIENCE.  83 

can  follow  the  best  concerted  plans.  The  willing  States  are  almost 
ruined  by  their  exertions;  distrust  and  jealousy  ensue.  Hence 
proceed  neglect  and  ill-timed  compliances;  one  State  waiting  to 
see  what  another  will  do.  This  thwarts  all  our  measures,  after  a 
heavy  though  ineffectual  expense  is  incurred." 

These  notes  were  counterfeited  to  such  an  extent  that 
Congress  was  compelled  to  call  in  the  issues  of  May  22,  1779, 
and  April  11,  1778.      Gen.  M'Dougal  wrote  with  regard  to  it 

as  folloAvs: 

"  The  enemy  is  confident  our  currency  will  fail  us,  *  *  *  * 
and  that,  whenever  the  supplies  tor  the  army  fail,  the  people  will 
return  to  their  allegiance.  He  is  now  counterfeiting  another 
emission,  which  will  soon  be  out." 

The  creditor  class  was  naturally  arrayed  against  the  Gov- 
ernment paper,  and  with  show  of  justice  when  it  was 
depreciated,  since  they  did  not  receive  their  due.  Many  who 
would  have  willingly  paid  a  tax,  resisted  tax  in  this  form, 
perceiving  only  that  their  debtors  got  off  with  less  than 
"  value  received."  The  fact  was  that,  instead  of  resorting  to 
direct  taxation,  nearly  the  entire  war  was  carried  on  by  this 
indirect  method.  It  was  bad  statesmanship,  and  evinced  a 
lack  of  knowledge  of  political  economy  and  the  natural  laws 
of  money.  By  making  notes  they  did  not  create  supplies. 
Supplies  had  to  be  produced  by  labor,  and  as  soon  as  deprecia- 
tion commenced  each  issue  should  have  been  oiFt:et  with  taxes 
to  a  like  amount.  They  were  not  issued  and  designed  as  a 
means  of  supplying  a  currency,  but  as  an  expedient  resorted 
to  by  a  revolutionary  bundle  of  states  likely  to  be  suppressed 
as  rebels. 

The  population  was  only  about  2,500,000,  and  the  property 
of  the  Confederation  valued  at  about  1600,000,000. 

When  it  is  considered  that  $359,546,825  of  this  money  was 
issued,  in  addition  to  that  of  the  separate  states,  it  is  not  to 
be  wondered  at  that  it  failed  to  maintain  its  value.  It  did 
not  depreciate  at  all  up  to  $9,000,000  of  notes. 

In  1780,  these  notes  were  worth  two  cents  on  the  dollar. 
No  bank  notos  with  such  a  shaky  foundation  ever  could 
have  been  issued  to  such  an  extent.  After  five  years  of  ex- 
pensive war.  the  proportion  between  the  proper  amount  of 
currency,  and  the  enormously  inflated  amount  would  probably 
indicate  about  two  cents  on  the  dollar. 


84  THE  SCIENCE  OF  MONEY. 

If  the  Contiikental  money  can  be  said  to  prove  anything, 
it  proves  too  much,  for  it  shows  that  a  feeble  Government,  in 
fact,  but  the  shadow  of  one,  can  increase  the  currency  with 
paper  money  to  the  extent  of  |9  to  $600  of  property  before 
depreciation  takes  place;  that  by  its  use  it  can  successfully 
terminate  an  uncertain  warfare  against  one  of  the  most 
powerful  nations  of  the  earth,  unscrupulous  enough  to  resort 
to  counterfeiting  its  issues.  The  individual  States  issued 
-large  amounts  of  their  own  notes,  which  they  made  receivable 
for  taxes.  On  this  account  they  came  to  be  preferred  as 
currency,  and  should  be  added  to  the  inflation. 

§  69.  At  the  close  of  the  revolution  the  country  was  flooded 
with  paper,  depreciated  so  low  and  swelled  to  such  a  volume 
that  lowering  the  standard  was  out  of  the  question.  This 
paper  had  operated  as  a  constant  tax  upon  creditors  and 
holders.  Let  us  understand  this  fully.  We  will  take  a  $100 
note.  The  Grovernment  receives  $100  from  the  first  holder. 
Suppose  it  leaves  him  at  $99.  He  loses  $1.  Let  it  change 
hands  at  a  like  shrinkage  each  time  until  the  last  man  has  it 
at  $1.  Each  of  the  ninety-nine  men  have  lost  $1,  and  the 
last  man  nothing  if  he  gets  $1  f-^r  it  from  the  Govern- 
ment. If  repudiated  outright,  he  loses  no  more  than  the 
ninety-nine  others.  If  the  last  holder  is  paid  $100  in  full, 
and  the  tax  levied  equally  among  the  one  hundred  men,  he 
pays  $1  for  the  note,  $1  tax.  and  gets  $98  for  nothing.  The 
poor  fellows  who  have  already  lost  $1  each,  which  the  Gov- 
ernment has  gained,  now  lose  another,  which  is  given  to  the 
man  who  lost  nothing.  Of  course  the  matter  would  not  be 
so  uniformly  distributed  as  supposed,  but  they  who  were  the 
greatest  creditors  and  holders  of  money  during  depreciation 
would  lose  the  most.  One  can  easily  see  that  such  a  tax 
would  be  about  as  fairly  distributed  as  many  that  are  levied 
as  such  by  design. 

It  reduces  itself  at  once  to  this.  The  war  has  cost  so  much, 
and  the  funds  must  be  raised  by  a  tax.  The  tax  ought  to  be 
levied  as  equally  as  possible  upon  property.  Did  the  depre- 
ciation of  currency  levy  the  tax  equally,  or  does  equity 
demand  that  the  tax  should  be  levied  again  and  the  last 
holders  of  the  depreciated  paper  be  presented  with  $98  for 


to 


COLONIAL  EXPERIENCE.  85 

every  $100  note  they  had  scooped  in  at  %1  ?  Property  was 
taxed  directly  while  currency  went  untaxed,  except  by  shrink- 
age. If,  then,  the  Government  retired  its  currency  at  the 
close  of  the  war,  at  its  depreciated  value,  no  one  could  have 
been  unjustly  taxed  thereby,  unless  the  depreciation  exceeded 
the  total  direct  tax  upon  an  equal  amount  of  property,  and 
then  the  unjust  taxation  would  be  less  than  the  excess  of 
shrinkage  over  total  direct  taxation.  For  example :  A,  with 
$100  of  currency  is  taxed  by  shrinkage  $5.  B,  with  $100 
of  property  is  directly  taxed  $4.  Excess  of  shrinkage,  $1. 
Each  should  be  taxed  $4.50.  Real  excess  of  shrinkage  over 
proper  tax,  50  cents. 

On  the  other  hand,  an  attempt  to  raise  the  value  of  the 
depreciated  currency  from  $1  to  $100,  not  only  shifts  all  the 
burden  of  taxation  from  the  currency  holders  to  the  property 
holders,  but  compels  the  Government  to  retire  a  vast 
amount  of  the  currency  at  par,  when  it  issued  it  at  a  large 
discount. 

The  matter  was  finally  disposed  of  on  the  basis  of  "  value 
received,"  and  equity  governed  the  public  policy  instead  of 
bullion  and  "  national  honor."  The  holders  were  paid  market 
value  at  the  time  of  settlement,  which  was  about  $1  on  $100. 
$168,280,219  was  thus  disposed  of,  giving  the  holders  it  real 
value  at  the  time,  amounting  to  $1,682,802.  The  difference 
had  already  been  lost  by  the  community  generally,  and  the 
Government  had  gained  it. 

The  foreign  debt,  $12,556,874,  created  by  the  revolution, 
was  paid  in  full  as  received;  so  was  the  domestic  debt,  for 
which  equivalents  had  been  received  to  the  amount  of  $40,- 
256,802.  The  debts  of  the  States  were  adjusted  as  equitably 
as  possible,  amounting  to  $19,962,219,  a  total  of  $74,458,697, 
which,  in  the  money  paid,  was,  no  doubt,  equal  in  value  to 
all  that  had  been  loaned.  No  one,  indeed,  complained  of  the 
action  of  the  Government  in  retiring  the  depreciated  cur- 
rencj""  at  its  actual  value,  except  those  who  had  secured  a 
quantity  of  depreciated  notes  and  were  anxious  that  they 
should  now  rapidly  rise  from  $1  to  $100.  Complaints  from 
such  quarters  should  scarcely  be  heeded. 


AMERICAN    FINANCES. 


CHAPTER  X. 

MONET   AND   THE   doNSTITUTION. 

§  70.  The  Constitution  of  the  United  States  is  the  ablest 
document  that  statesmanship  ever  brought  forth. 

Far  in  advance  of  its  age,  it  has  come  down  to  us  so  full  of 
sound  principles  of  government  that  it  is  as  fit  to  guide  the 
ship  of  state  to-day  as  it  was  one  hundred  years  ago.  It  con- 
tains the  following  provisions  with  regard  to  money: 

"The  Congress  shall  have  power.—        ***** 

"2.  To  borrow  money  on  tlie  credit  of  the  United  States.    *    * 

"5.  To  coin  money,  regulate  the  value  thereof,  and  of  foreign 
<3oin,  and  fix  the  standard  of  weights  and  measures." 

"17.  To  make  all  laws  which  may  be  necessary  and  proper  for 
cajTying  into  execution  the  foregoing  powers, and  all  otlier  i)owers 
vested  by  this  Constitution  in  the  Government  of  the  United 
States,  or  in  any  department  or  olHce  thereof. 

•'No  State  shall  *  *  *  coin  money,  emit  bills  of 
■credit,  [or]  make  anything  but  gold  and  silver  coin  a  tender  in 
payment  of  debts." 

These  provisions  seem  to  be  perfect,  and  as  explicit  as 
language  can  make  them.  From  that  time  to  this,  however, 
their  meaning  has  been  contested,  and  it  would  seem  proper 
to  pause  and  discuss  them  briefly. 

§  71.  Justice  Storey  lays  down  the  following  rule  of  inter- 
pretation : 

*  "  It  is  to  be  interpreted,  as  all  other  solemn  instruments  are, 
by  endeavoring  to  ascertain  the  true  sense  and  meaning  of  the 

*  storey  on  the  Constitution,  p.  36  :  Interpretation. 

[87] 


88  AMERICAN  FINANCES. 

terms,  tind  we  fire  neither  to  narrow  them  nor  enlarge  them  by 
straining  them  from  their  just  and  natural  import,  for  the  purpose 
of  adding  to  or  diminishing  its  powers,  or  binding  them  to  any 
favorite  theory  or  dogma  of  party. 

"  It  is  the  language  of  the  people,  to  be  judged  of  according  to 
common  seuse,  and  not  by  mere  theoretical  reasoning." 

He  also  says  of  the  Preamble : 

"  This  Preamble  is  very  importmit,  not  only  as  explanatory  of 
the  motives  and  objects  of  framing  the  Constitution,  but  afford- 
ing the  best  key  to  the  true  interpretation  thereof. 

*  *  *  *  :S  *  j|: 

"Every  provision  in  the  instrument  may  fairly  be  presumed  to 
have  reference  to  one  or  more  of  these  objects,  and  consequently 
if  any  provision  is  susceptible  of  two  interpretations,  that  ought 
to  be  adopted  and  adhered  to  which  l)est  liarmoniz<is  with  the 
avowed  intentions  and  objects  of  the  authors,  as  gathered  from 
their  declarations  in  the  instrument  itself  " 

We  think  no  one  will  dispute  the  correctness  of  these 
remarks. 

§  72.  The  power  to  borrow  money  involves  the  power  to 
issue  bonds,  provide  for  their  payment,  and  negotiate  loans. 
In  order  to  provide  for  their  payment,  Congress  must  be  able 
to  levy  taxes;  and,  in  order  to  negotiate  loans,  it  must  be 
able  to  prevent  local  and  subordinate  interference  with  their 
value.  The  latter  question  has  been  raised  in  the  Supreme 
Court,  and  it  has  been  decided  by  that  tribunal  that  State 
taxation  of  Government  bonds  would  interfere  with  the 
power  of  Congress  to  borrow  money,  since  such  taxes  might 
render  it  unprofitable  to  the  citizen  to  make  the  loan.  It  is, 
moreover,  a  well-settled  principle  in  law.  that  no  subordinate 
power  can  lawfully  interfere  with  the  exercise  of  the  func- 
tions of  the  General  Government. 

§  73.  To  coin  money  is  universally  admitted  to  be  a  func- 
tion of  Goveruraent.  "Coin"  in  this  phrase  is  a  verb,  and 
has  no  reference  to  any  particular  thing  or  kind  of  metal. 
The  essential  feature  of  the  act  of  coining  money  is  that  of 
declaring  what  shall  be  legal  tender,  im[)arting  to  the  thing 
coined  the  legal  power  of  cancelling  debt.  It  had  been  the 
practice  in  the  colonies,  and  also  in  foreign  countries,  to  make 
various  articles  into  money,  sometimes  worth  as  merchandise 
the  value  represented,  and  sometimes  not.     It  is  difficult  to 


MONEY  AND  THE  CONSTITUTION.  89 

see  how  any  one  can  construe  tlie  power  to  borrow,  as  author- 
izing both  bonds  and  bills  of  credit,  and  yet  fail  to  see  that  a 
like  unlimited  power  to  coin  money  should  confer  the  power  to 
make  both  metal  and  paper  money.  Both  are  unlimited;  and 
paper  money  is  an  incidental  of  coining  money  as  much  as 
bills  of  credit,  or  notes,  are  an  incidental  of  borrowing.  To 
restrict  one  power,  and  not  the  other  is  absurd.  The  follow- 
ing, from  Tiffany,  is  warranted  by  the  rule  of  interpretation 
above  quoted: 

*"The  act  of  coining  money  consists  in  affixing  to  that  which 
is  to  constitute  raouey  the  stamp  or  seal  of  sovereign  authority, 
by  which  it  may  be  recognized  and  known  in  market  as  authorita- 
tively entitled  to  be  received  at  the  price  or  value  stamped  tliere- 
on.  The  authority  which  coins  or  stamps  itself  upon  tlie  article 
can  select  what  substance  it  deems  suitable  to  receive  the  stamp 
and  pass  as  money;  and  it  can  affix  what  value  it  deems  proper, 
independent  of  the  intrinsic  value  of  the  substance  upon  which 
it  is  affixed.  The  usual  substances  which  have  been  selected  for 
the  purpose  of  being  used  as  money,  are  the  various  metals,  as 
silver,  gold,  copper,  brass,  and  such  alloys  as  the  sovereignty  in  its 
pleasure  adopts. 

*  *  ♦•l!  *  *  * 

"To  coin  or  stamp  money  and  regulate  its  value  includes  the 
whole  power  of  sovereignty  in  respect  to  currency.  It  includes 
the  authority  to  select  the  substance  to  receive  the  impression. 

"  By  keeping  constantly  in  mind  that  the  quality  of  money 
or  legal  currency  consists  in  the  enstamped  authority  of  the  Gov- 
ernment upon  that  which  is  used  as  such;  and  that  the  authority 
to  coin  monej%  and  affix  its  value,  involves  the  whole  power  of 
sovereignty  over  the  subject  of  legal  currency— to  select  what  sub- 
stance, to  affix  what  stamp,  and  ordain  what  value  it  pleases;  the 
whole  law  upon  the  subject  of  money,  as  a  currency  and  as  a  com- 
modity becomes  comprehensible.  But  to  confound  the  legal 
quality  of  money  with  the  commercial  value  of  that  which  is 
used  to  receive  the  royal  impression,  begets  infinite  difficulty,  be- 
cause there  is  no  necessary  relation  between  the  two.  Govern- 
ment, like  the  Spartan  law-giver,  may  put  its  stamp  upon  leather, 
and  make  that  currency;  and  so  long  as  it  can  provide  against  the 
counterfeiting  of  the  same,  and  thus  can  regulate  the  quantity  in 
use,  it  can  give  to  its  stamp  upon  leather  the  same  money  value 
as  if  put  upon  gold  or  silver,  or  any  other  substance.    Tlius  Gov- 


♦Tifliiny  on  Goverament  and  Constitutional  Law,  Chapter  XII.,  Sees.  400,  40l, 
and  403. 


■90  AMERICAN  FINANCES. 

ernraent  may  put  its  royal  or  sovereign  stamp  upon  paper,  affix- 
ing its  money  value,  and  if  it  limit  the  quantity,  and  provide  fully 
against  the  counterfeiting  of  it,  it  will  liave  tlie  same  currency 
value  as  gold  or  silver,  or  any  other  substance.  It  must  be  remem- 
bered that,  h-gally  speaking,  money  is  not  a  commodity,  and  com- 
merce can  make  it  such  only  by  dealing  with  that  upon  which  the 
money  quality  is  impressed. 

4:  4=  4i  #  4:  4:  4: 

"The  act  of  coining  money  consists  in  imparting  to  any  sub- 
stance this  legal  currency  quality,  by  which  it  legally  can  be  used 
as  a  medium  of  exchange  without  permitting  its  value  or  author- 
ity to  be  questioned  m  the  domestic  market.  That  upon  which 
the  stamp  is  placed  is  called  coin;  the  act  of  stamping  is  called 
coining;  and  as  the  practice  of  all  governments  using  currency 
has  been  generally  to  place  its  money  stamp  upon  metals  of  some 
kind,  the  common  idea  of  coin  is,  that  it  must  be  a  metal,  as  a  sub- 
stance distinguished  from  all  other  substances.  But  this  rests 
solely  in  the  discretion  of  the  sovereign  or  sovereignty ;  whether 
the  coin  shall  be  metal,  leather,  i)archment,  paper,  or  any  other 
substance,  is  a  question  of  expediency,  of  political  economy,  and 
not  of  authority." 

The  Supreme  Court  opinion  rendered  in  the  case  of  Parker 
V.  Davis  and  Knox  v.  Lee  (12  Wallace,  p.  543),  coincides  with 
ihis  interpretation  as  follows: 

"  The  Constitution  does  not  ordain  what  metals  may  be  coined, 
or  prescribe  th;it  the  legal  value  of  metals,  when  coined,  shall  cor- 
respond at  all  with  their  intrinsic  value  in  the  market.  Nor  does 
it  even  affirm  that  Congress  may  declare  anything  to  he  a  legal 
tender  for  the  payment  of  debts.  Confessedly  the  power  to  regu- 
late the  value  of  money  coined,  and  of  foreign  coins,  is  not  ex- 
hausted by  the  first  regulation.  More  than  once  in  our  history 
has  the  regulation  been  changed  without  any  denial  of  the  power 
of  Congress  to  change  it,  and  it  seems  to  have  been  left  to  Congress 
to  determine  alike  what  metal  shall  be  coined,  its  purity,  and  how 
far  its  statutory  value  as  money  shall  correspond,  from  time  to 
time,  with  the  market  value  of  the  same  metal  as  bullion." 

The  courts  of  several  of  the  States  have  concurred  in  the 
same. 

There  is  a  belief  quite  popular  with  many  that  it  is  consti- 
tutional for  Conccress  to  issue  paper  in  the  form  of  promises 
to  pay  coin,  and  by  some  degree  of  law  give  it  the  functions 
of  money,  while  it  is  unconstitutional  to  issue  an  inconvert- 
ible paper  cuirency.     When  the  Constitution  was  formed,  its 


MONET  AND  THE  CONSTITUTION.  91 

framers  left  out,  with  conscious  aforethought,  a  clause  which, 
if  inserted,  would  have  given  Congress  the  power  to  ''  emit 
bills  of  credit,"  they  did  just  as  consciously  empower  Congress 
to  issue  money,  without  any  restriction,  and  to  regulate  the 
value  thereof  exactly  as  they  should  see  fit. 

Storey,  in  his  able  work  on  the  Constitution,  says:  "To 
emit  bills  of  credit  conveys  to  the  mind  the  idea  of  issuing 
paper  intended  to  circulate  through  the  communitj^  for  ordi- 
nary purposes,  as  money,  which  paper  is  redeemable  at  some 
future  day." 

Bills  of  credit  and  bullion  are  practically  used  for  the  same 
purpose.  Both  are  ordinarily  taken  and  valued  for  the 
amount  of  something  useful  it  is  expected  they  can  some- 
time be  exchanged  for.  Neither  can  pay  debt,  nor  in  any 
wise  properly  exercise  the  function  of  money.  Legal  tender 
paper  and  coin,  on  the  other  hand,  represent  a  definite 
amount  of  debt  that  can  be  canceled  or  "repudiated,"  regard- 
less of  the  market  value  of  bullion  or  Government  credit.  Be- 
ing able  to  manufacture  money  from  paper  or  metal,  but  not 
to  emit  bills,  Congress  cannot  delegate  a  power  which  it  does 
not  possess.  Nor  can  Congress  delegate  its  powers  at  all,  for 
"delegated  powers  cannot  be  re-delegated."  It  is  then  evi- 
dently unconstitutional  for  Congress  to  either  charter  a  bank 
to  emit  bills  of  credit  (bank  notes),  or  to  itself  issue  these 
bills  or  notes  and  compel  the  bank  to  put  up  bonds  as  secur- 
ity for  their  redemption.  It  is  constitutional,  however,  to 
issue  an  irredeemable,  inconvertible  paper  currency,  and  Con- 
gress once  having  done  so,  it  only  remains  as  a  moral  obliga- 
tion to  provide  for  a  projjer  regulation  of  its  value. 

§  74.  "  To  regulate  the  value  thereof,  and  of  foreign  coins," 
is  necessary  to  enable  the  Government  to  "establish  justice" 
and  "promote  the  general  welfare,"  for, as  has  been  seen, any 
change  in  the  value  of  money  changes  all  contracts  to  pay 
money.  Doubling  the  value  of  each  dollar  is  equivalent  to 
doubling  the  number  of  dollars  named  in  everj"  such  contract 
in  the  country.  This  function  is  of  vital  importance  to  the 
people,  and  upon  its  proper  exercise  rests,  to  a  great  extent, 
the  general  prosperity. 

The  theory  set  up  that  such  power  is  exhausted  when  a 


©2  AMERICAN  FINANCES. 

coin  is  struck  and  passes  out  of  the  mint,  is  not  warranted  by 
the  language.  "Regulate"  implies  continuous  action.  This 
power  cannot  be  fully  exercised  by  merely  changing  the 
weight  of  coins  from  time  to  time.  If  such  had  been  the 
intention,  "change"  would  have  been  the  word  used.  Upon 
such  a,  theory,  the'  words  "  and  of  foreign  coins  "  would  never 
have  been  introduced,  and  if  used,  could  only  be  interpreted 
that  Congress  should  make  coinage  laws  for  foreign  nations. 
In  framing  the  Constitution,  Congress  was  given  power  to 
"fix  the  standards  of  weights  and  measures."  If  it  was  the 
intention,  as  some  have  supposed,  to  limit  Congress  to  coin- 
ing metal,  thus  making  a  fixed  weight  of  bullion  the  stand- 
ard of  value,  is  it  not  a  little  .singular  that  they  should  have 
omitted  to  delegate  to  Congress  the  power  to  fix  the  standard 
of  value,  as  well  as  that  of  weight  and  measure? 

The  prohibition  laid  upon  the  States  was  in  pursuance  of 
the  principle  laid  doAvn  with  regard  to  borrowing  money, 
and  was  designed  to  prevent  any  interference  with  these 
functions  of  coining  and  regulating  its  value.  //"  States  can- 
not tax  bonds  because  suclt  taxation  interferes  ivith  the  power 
to  borrow,  then  banks  of  issue  cannot  exist,  because  such  issti- 
ing  interferes  irith  the  power  to  regulate  the  value  of  money; 
one  is  as  fatal  to  the  sovereigntij  as  the  other. 

From  the  language  of  the  Constitution,  it  is  evident  that 
its  framers  did,  in  a  great  measure,  understand  the  true  laws 
pertaining  to  measurement  and  value. 

§  To.  We  find,  lastly,  the  power  conferred  "  to  make  all 
laws  necessary  and  proper"  to  carry  into  effect  the  foregoing 
powers.  The  laws  required  to  borrow,  or  to  coin  money,  are 
not  very  difficult  to  understand;  but  when  we  come  to  those 
regarding  the  regulation  of  the  value  of  money,  we  find  a 
wide  and  thorough  knowledge  of  finance  is  necessary  to  their 
proper  understanding.  Declaring  how  many  pounds  of 
wheat  shall  constitute  a  bushel,  has  no  effect  upon  the  value 
of  wheat  in  the  abstract;  it  only  determines  the  size  of  the 
bushel.  The  value  of  the  bushel  will  be  determined  accord- 
ing as  wheat  is  cheap  or  dear.  To  regulate  the  value  of 
wheat,  something  more  is  needed  than  to  coin  the  bushel; 
the  value  of  wheat  in  the  al  str.ict  must  be  dealt  with.  This 
can  only  be  done  through  tiie  law  of  supply  and  demand. 


GOVERNMENT,  AND  '•  WU.D-L'AT"  BANKING.        93 

A.n  absolute  monopolj'^  of  vvlieat  and  it^  substitutes  would 
be  necessary  at  first,  and  then  must  follow  a  regulation  of 
supply.  To  regulate  the  supply  would  constitute  the  "neces- 
sary and  proper"  act  in  order  to  "regulate  the  value,"  and  in 
no  other  ivaij  can  it  possibly  be  done.  This  is  as  true  with 
regard  to  money  as  wheat,  and  Congress  has  never  yet  suc- 
ceeded in  regulating  the  value  of  money,  in  fact,  has  never 
attempted  it.  There  are  two  reasons  why  it  has  not.  In. 
the  first  place,  the  money  power  has  stolen  and  exercised 
that  function,  and  successfully  resisted  all  such  attempts; 
and  in  the  second  place,  oAviug  to  the  difficult}'  of  under- 
standing how  it  ought  to  be  done,  legislators  have  been  at  a 
loss  to  know  what  laws  were  "  necessary  and  proper." 

The  "  moneyed  interest "  was  powerful,  and  would  have 
resisted  to  their  utmost  any  encroachment  upon  their  "  busi- 
ness." Seeing  this,  a  compromise  arrangement  was  made, 
and  the  Government  took  the  bank  into  partnership,  result- 
ing in  the  United  States  Bank. 


CHAPTER  XL 

GOVERNMENT.  AND  "  WILD-OAT  "  BANKING. 

§  76.  The  first  United  States  Bank  was  chartered  in  1791, 
with  a  capital  stock  of  $10,000,000,  the  Government  subscrib- 
ing $2,000,000,  the  balance  was  private  subscription,  one- 
fourth  in  coin,  the  remainder  in  Government  bonds.  The 
Government  substantially  took  a  private  corporation  intb 
partnership  in  the  business  of  coining  money  and  regulating 
its  value.  The  bank  could  not.  owing  to  the  restrictions 
placed  upon  its  management,  be  as  reckless  as  wild-cat  bank- 
ing, but  this  action  delegated  in  substance  a  function  of  the 
Government  to  a  corporation. 

§  77.  The  system  was  undoubtedly  preferable  to  allowing 
the  State  banks  to  operate  in  a  manner  described  by  Sumner 
as  follows: 

*  "  The  new  financial  machine  seemed  so  powerful  and  beneficent 


*  Sum.  Hist  of  Am.  Cur.,  p.  Cl. 


94  AMERICAN  FINANCES. 

that  all  that  was  necessary  was  to  work  it  to  the  utmost.    I^otes 
under  .'#5  were  not  allowed  in  Massachusetts  until  1805,  but  after 
that  smaller  denominations  were  allowed,  and  finally  notes  were 
issued  as  low  as  25  cents,  and,  by  the  law  that  paper  drives  out  specie 
to  the  lowest  denomination  to  which  it  is  issued,  there  was  no 
specie  in  the  Xew  England  States.    The  stock  of  specie  in  bank 
was  insignificant,  and  was  moved  from  bank  to  bank  to  meet  the 
inspectors'  visits.    The  downfall  came  in  1809.    One  bank  in  Mas- 
sachusetts had  $40  in  specie;  another,  nothing.    The  system  of 
subscribing  to  capital  by  notes  was,  as  it  appears,  universal.    The 
Farmers  Exchange  Bank  of  Gloucester,  R.  1.,  founded  in  1804,  was 
probably  the  worst  case.    The  capital  was  !i«i,000,OuO.    Only  819,- 
141.8G    were   ever  paid  in,  and  of  this  the  directors  withdrew 
what  they  paid  in,  leaving  $3,081.11.      One  Dexter   bought  out 
eleven  of  the  directors  for  .91,300  each,  paid  out  of   the   bank's 
funds.    He  borrowed  of  the  bank  $760,265.    When  it  failed  it  had 
$86.46  in  specie;  bills  out  unknown;  the  committee  estimated 
them  at  $560,000." 

The  charter  of  the  United  States  Bank  expired  i-n  1811,  and 
was  not  renewed.  The  opposition  to  its  re-charter  came 
principally  from  those  who  desired  to  engage  -in  wild-cat 
banking,  as  its  management  had  been  such  as  to  suppress 
svich  operations. 

The  State  Banks  which  followed  with  only  convertibility 
as  a  regulator,  proved  worje  than. the  United  States  Bank 
which  was  regulated  by  convertibility,  plus  Grovernment 
interference. 

The  currency,  under  the  management  of  the  State  Banks, 
was  inflated  from  $2S,000;000in  ISll,  to  $110,000,000  in  1816, 
with  tlie  usual  result  of  collapse  and  panic.  During  this 
period  of  inflation  the  war  of  1812  occurred.  The  Grovern- 
ment, as  at  the  commencement  of  the  rebellion,  resorted  to 
loans  instead  of  taxes.  The  inevitable  consequences  followed. 
It  issued  bills  of  credit  of  its  own,  and  borrowed  the  bills  of 
the  banks.  This  act  of  issuing  bills  was  considered  one  of 
the  implied  powers  under  the  power  to  borrow  money.  As  a 
consequence  of  pursuing  this  course,  it  was  entirely  at  the 
mercy  of  the  money  changers,  its  bills  being  refused  by 
btmkers,  and  looked  upon  as  a  sort  of  competition  not  to  be 

tolerated. 

The  following  is  copied  from  the  report  of  the  Comptroller 
of  tlie Currency,  June  ;W.  1875.  page  191. 

"The  policy  of  the  State  Banks  at  that  time  seemed  to  be  antag- 


GOVERNMENT  AND  "  WILD-CAT"  BANKING.         95 

onistic  to  the  Government,  and  the  correct  this  antagonism  various 
])ropositions  were  made  with  a  view  to  identify  the  interests  of  the 
various  monetary  institutions  in  some  degree,  at  least,  with  those 
of  the  United  States.  Fifty  years  later,  in  1863,  this  was  accom- 
plished by  the  establishment  of  the  National  Bunking  System. 
*  *  *  A  like  reference  to  the  latter  period  will  show 
that  the  National  Banking  System  was  authorized  as  a  permanent 
system,and  that  the  issue  of  Treasury  notes  was  an  expedient  desired 
to  meet  a  great  national  emergency.  That  it  was  the  intention  of 
Congress  in  this,  as  in  former  instances,  to  withdraw  such  issues 
as  si>ee(lily  as  possible  after  the  close  of  the  war. 

"War  was  declared  with  Great  Britain  June  11, 1812.  Specie  pay- 
ments, except  in  New  England,  were  suspended  Aug.  31,  1814. 
Peace  was  restored  Feb.  11,  ISl.^i.  Specie  payments  were  nomiiuilly 
resumed  Feb.  1, 1817.  The  charter  of  the  first  Bank  of  the  United 
States  expired  ^Vlarch  4,  1811,  and  the  second  Bank  of  the  United 
States  was  chartered  April  3,  1816.  Mr.  Crawford,  then  Secretary 
of  the  Treasury,  estimated  that,  during  the  four  years  ending  in 
1815,  the  bank  circulation  was  increased  in  volume  from  i?2'J,000,- 
OOOto.-:59!),00;i,000,  (1813,  $62,000,000;  in  1815,  S09,000,OUO ;  1819,645,- 
000,000  to  $53,000,000).  Many  of  the  notes  of  the  city  banks  were 
taken  at  a  discount  of  20  per  cent.,  those  of  the  country  at  20  to  50. 
fhe  Treasury  Department  added  lai'gely  to  the  alread-  abundant 
circulation,  issuing  $36,680,794.  These  notes  might  be  of  any 
denomination,  and,  if  below  100,  were  payable  to  bearer  and  bore 
no  interest,  if  above  100,  they  bore  interest,  were  transferable  by 
indoi-sement,  and  bore  interest  at  1%  cents  per  day  on  100.  The 
notes  depreciated  8  to  10  per  cent,  below  specie-paying  bank  notes." 

Thus  it  will  be  seen  that  the  issue  of  paper  money  was  not 
resorted  to  at  all,  and  to  allow  the  money  power  to  "  go  it 
alone  "  was  worse  than  some  forms  of  partnership,  hence  it 
seemed  but  of  the  two  evils  to  choose  the  lesser.  The  finan- 
ces were,  no  doubt,  ki  a  deplorable  condition,  but  Congress 
should  have  exercised  its  right  to  coin  money  of  paper  for 
the  benefit  of  the  Treasury,  and  suppressed  the  issue  of  notes 
for  private  gain.  There  was  inflation*"  as  it  was,  and  it  should 
have  been  for  the  benefit  of  the  Government  rather  than  for 
corporations,  if  at  all. 

Had  proper  taxation  been  resorted  to  it  need  not  have  oc- 
curred at  all.  Governments  should  never  borrovr  from  their 
own  subjects.  Taxation  will  reach  the  supplies  more  equit- 
ably and  with  less  loss. 

§  78.  The  second  United  States  bank  was  chartered  in  1816 


96  AMERICAN'  FINANCES. 

upon  substantially  the  same  plan  as  the  first.  Its  operations 
so  infla-ted  the  currency,  that  it  was  obliged  to  buy  |7,000,- 
000  of  bullion  in  the  West  Indies,  to  be  exported  as  fast  as 
it  arrived.  Within  fift.^en  months  from  the  time  it  started, 
grave  doubts  of  its  solvency  were  entertained.  It  then  con- 
tracted its  currency,  $4,500,000,  and  yet  specie  was  not  at  par. 
How  much  both  paper  and  specie  had  advanced  during  this 
time  does  not  appear,  but  it  must  have  been  considerable,  as 
Great  Britain  was  contracting  at  the  same  time,  and  prepar- 
ing for  resumption.  A  year  later,  the  bank  made  a  desperate 
effort  to  save  itself,  and,  in  so  doing,  ruined  the  business  com- 
munity by  its  contraction  of  currency  and  loans. 

*  "In  August,  1819,  20,000  persons  were  seeking  employment  in 
Philadelphia,  and  there  was  a  similar  state  of  things  in  Xew  York 
and  Baltimore.  Thirty  trades  which  employed  9,672  persons  in 
1816,  at  Philadelphia,  employed  only  2,137  in  1819.  Trades  which 
employed  1,960  persons  at  Pittsburg  in  1815,  employed  only  672  in 
1819.  The  papers  were  tilled  with  advertisements  of  sheriff's 
sales.  ******** 

"  Land  in  Pennsylvania  was  wod'th  on  the  average,  in  1809,  $.38  per 
acre;  in  1815,  .fl50;  in  1819,  $35.  -The  note  circulation  of  the 
country,  in  1812,  was  about  45,000,000;  in  1817,  100,000,000;  in  1819 
45,000,000. 

"  The  newspapers  of  1819  contain  numerous  accounts  of  riots,  in- 
cendiary fires,  frauds  and  robberies.  The  House  committee  spoke 
of  the  '  change  of  the  moral  character  of  many  of  our  citizens  by 
the  presence  of  distress.'  ****** 

"Stagnation  and  distress  lasted  throughout  1820.  Prices  were  at 
the  lowest  ebb,  and  liquidation  went  slowly  on.  Wlieat  was  20 
cents  per  bushel  in  Kentucky.  A  man  in  Western  Virginia 
stopped  Nile  s  Register  because  one  barrel  of  Hour  used  to  pay  a 
year's  subscription,  now  three  barrels  would  not.  At  Pittsburg 
tiOur  was  $1  per  barrel;  boards,  20  cents  per  hundred;  sheep  $1." 

It  will  be  observed  that,  like  the  period  of  inflation  in  Eng- 
land that  preceeded  the  panic  of  1837,  the  State  banks  were 
issuing  large  amounts.  How  much  of  this  trouble  was  due  to 
each,  it  is  difficult  to  estimate.  At  this  time  Great  Britain 
was  resuming  specie  payments,  and  we  have  a  lesson  worth 
learning  with  regard  to  the  "  money  of  the  world."  When 
both  England  and  America  were  inflating  and  making  coin 
cheap,  neither  wanted  it  more  than  the  other.     When  both 

•  Sum.  Hist.  Am.  Cur.,  p.  79. 


GOVERNMENT  AND  "  WILD-CAT"  BANKING.         97 

were  in  the  throes  of  a  panic,  both  wanted  it  desperately,  the 
"  vacuum  "  being  indicated  by  the  prices  quoted  above. 

Gold  would  not  come  from  England,  for  she  needed  it  as 
much  as  we  did.  In  sympathy  with  the  movements  across 
the  water,  inflation  and  panic  in  1825  were  the  next  in  order. 
The  United  States  Bank  increased  its  issue  over  $3,000,000. 
After  the  collapse  of  1825.  the  usual  process  of  inflation  was 
again  repeated.  In  1829,  Gen.  Jackson  questioned  the  pro- 
priety of  the  Government  remaining  in  partnership  with  the 
United  States  Bank.  In  1831,  the  bank  increased  its  loans 
from  forty  to  sixty  millions,  and  in  1832,  to  seventy  millions. 
This  year  it  applied  for  an  extension  of  its  charter,  and  the 
contest  began  between  the  bank  and  the  Government,  over 
the  issue  and  the  control  of  the  paper  money  of  the  country. 
The  result  was  a  victory  for  the  money  power.  The  Govern- 
ment abandoned  the  issue  of  paper  to  the  banks  acting  under 
State  authority,  and  confined  itself  to  coining  metals,  thus 
depriving  itself  of  the  power  to  regulate  the  value  of  money 
except  as  it  might  do  so  by  changing  the  weight  of  its  coins. 
(For  a  complete  historj^  of*  this  contest  see  Benton's  Thirty 
Years'  View.)  The  bill  to  re-charter  the  bank  was  passed  and 
vetoed  by  Jackson  in  1832.  In  1834,  the  public  deposits 
were  removed.  The  bank  rapidly  curtailed  its  loans,  and 
the  consequent  flurry  produced  the  fall  of  prices  indicated 
by  the  price  line  of  diagram  No.  1.  It  was  a  shortening  of 
the  supply  of  credits,  and  a  consequent  reduction  of  buyers 
of  goods. 

The  whole  community  was  thus  affected  by  the  voluntary 
action  of  the  bank. 

§  79.  During  this  year  the  weight  of  gold  coins  was  re- 
duced from  27  to  25.8  grains  to  the  dollar.  Gold  had  been 
overrated  before  that  time,  and  silver  had  been  the  sole  coin 
in  circulation.  The  lower  line.  No.  3,  shows  a  large  share 
of  the  coinage  of  that  time  to  have  been  silver.  This  bring- 
ing of  gold  into  circulation  was  bitterly  opposed  by  the  bank 
men  of  that  time,  and  earned  the  name  of  "Old  Bullion" 
for  Thomas  Benton.  The  bank  then  opposed  Government 
issues  of  gold  as  bitterly  as  banks  oppose  to-day  any  issue  of 
Government  paper.    It  was  not  then,  and  is  not  now.,  hard 

7 


98  AMERICAN  FINANCES. 

versus  soft  money,  hut  Government  versus  bank  money.     The 
bank  is  either  hard  or  soft,  as  self-interest  dictates. 
Of  bringing  gold  into  circulation,  Benton  writes: 

*"A  large  interest  connected  with  the  Banlv  of  the  United 
States,  and  its  subsidary  and  subaltern  institutions,  and  the  whole 
paper  system  vehemently  opposed  it,  and  spared  neither  ])ains  nor 
expense  to  check  its  circulation  and  to  brin.y;  odium  upon  its  sup- 
porters. People  were  alarmed  witli  counterfeits.  Gilt  counters 
were  exhibited  in  the  markets  to  alarm  the  ignorant.  The  coin 
itself  was  burlesqued  in  mock  imitation  of  brass  or  coi)])er,  with 
grotesque  figures  and  ludicrous  inscriptions— the  '  wliole  hog, 
and  the  'better  currency,'  being  the  favorite  devices.  j\Iany  news-' 
papers  expended  tlieir  daily  wit  in  its  stale  depreciaticm.  The 
most  exalced  of  the  paper  money  party  would  recoil  a  step  when 
it  was  offered  to  them,  and  beg  tor  paper.  The  name  of  '  Gold 
Humbug'  was  fastened  u[)on  the  person  supposed  to  liave  been 
chiefly  instrumental  in  bringing  the  derided  coin  into  existence." 

It  was  during  this  contest  that  Daniel  Webster  used  the 
language  so  glibly  quoted  by  the  bullionists: 

"  Of  all  the  contrivances  for  cheating  the  laboring  classes  of 
mankind,  none  has  been  more  effectual  than  that  which  deludes 
them  Avith  paper  money.  •  This  is  tlie  most  effectual  of  inventions 
to  fertilize  tlie  rich  man's  field  by  the  sweat  of  the  poor  man's 
brow.  Ordinary  tyranny,  oppression,  excessive  taxation,  these 
b;:!ar  ligldly  on  the  happiness  of  the  mass  of  the  community  com- 
pared with  fraudulent  currencies,  and  the  robberies  committed  by 
depreciated  paper." 

This  was  said  in  an  argument  in  favor  of  the  United 
States  Bank,  as  against  Stats  banks,and  had  no  reference  to 
coin.  lie  set  forth  his  position  clearly  in  other  debates,  in 
the  follov>'}ng  language: 

X  "The Constitution  declares  that  Congress  shall  have  power  'to 
coin  money,  regulate  the  value  thereof,  and  of  foreign  coin,' and 
it  also  declares  that  'no Slate  ^hall  coin  money,  emit  bills  of  credit, 
or  make  anything  but  gold  and  silver  coin  a  tender  in  i)ayment  of 
debts.  CongresSj  then,  and  Congiess  only,  can  coin  nioiu^y  and 
regvlxUe  the  xaliie  thereof.  Now,  sir,  I  take  it  to  be  a  trutli,  which 
has  grown  into  an  admitted  maxim  witli  all  the  best  writers,  and 
the  best  liiformed  public  men,  that  those  wliose  duty  it  is  to  pro- 
tect the  conun unity  against  tlu'  evils  of  a  debased  coin,  are  bound 
also  to  protect  it  against  the  still  greater  evils  of  excessive  issues 
of   pappr  money.    If   the  pul»]ic    require   protection,    says   Mr, 

*  1 1  luou's  Tliirty  Veiirs  View.  p.  4To. 
$  "Webster's  f^^^ptethes  :  Tappau,  Boston,  vol.  2,  p.  306. 


GOVERNMENT  AND  "  WILD-CAT"  BANKING.         99 

Eicardo,  against  bad  nione3%  which  might  be  imposed  on  tliem  by 
an  undue  mixtui-e  of  alloy,  how  much  more  necessary  is  such  pro- 
tection, when  paper  money  forms  almost  the  whole  of  the  circu- 
lating medium  of  the  country.  It  is  not  doubted,  sir,  that  the 
Constitution  intended  that  Congress  should  exercise  a  regulating 
power— ai)ower  both  necessary  and  salutary  over  that  which  should 
constitute  the  actual  money  of  the  country,  whether  that  money 
were  coin  or  representatives  of  coin.  So  it  has  always  been  con- 
sidered. So  Mr.  Madison  considered  it,  as  may  be  seen  by  his 
message,  Dec,  1816.  The  State  banks  put  forth  paper  as  represent- 
ing coin ;  as  such  representatives  it  obtains  circulation ;  it  becomes 
the  money  of  the  country;  but  its  amount  depends  on  the  will  of 
four  hundred  different  State  banks,  each  acting  on  its  own  dis- 
cretion." 

And,  again,  upon  the  proposition  to  limit  the  Government 
to  coin,  and  abandon  paper  to  State  banks,  he  said: 

*  "Now,  sir,  my  present  purpose  chiefly  is,  to  maintain  two  pro- 
positions: 

1.  That  it  is  the  constitutional  duty  of  the  Government  to 
see  that  a  proper  currency,  suitable  to  the  circumstances  of  the 
times,  and  to  the  wants  of  trade  and  business,  as  Avell  as  to  the 
payment  of  debts  due  the  Government,  be  maintained  and  pre- 
served, a  currency  of  general  credit,  and  capable  of  aiding  the 
operations  of  exchange,  so  far  as  these  operations  may  be  conducted 
by  means  of  the  circulating  medium;  and  that  there  are  duties, 
therefore,  devolving  on  Congress,  in  relation  to  currency,  beyond 
the  mere  regulation  of  gold  and  silver  coins. 

2.  That  the  message,  the  bill  and  the  proposed  amendment,  all 
in  effect  deny  any  such  duty,  disclaim  all  such  power,  and  conline 
the  constitutional  obligations  of  the  Government  to  the  mere 
regulation  of  the  coins,  and  the  care  of  its  own  revenues." 

In  spite  of  Webster's  opinion,  however,  the  policy  was 
adopted  by  which  the  Government  abandoned  to  the  banks 
the  regulation  of  the  currency. 

§  80.  In  1835-36,  we  find  an  enormous  increase  in  bank 
notes,  loans,  and  discounts,  due  to  the  rapid  increase  of  banks 
induced  by  the  fact  that  the  charter  of  the  United  States 
Bank  would  expire  in  1836.  This  gave  rise  to  active  trade  and 
rapid  production  of  wealth.  Railroads  were  beginning  to  be 
built.  There  was  built  in  1831,  72  miles;  in  1835,  465  miles. 
The  sales  of  land,  by  the  Government,  in  1833,  amounted  to 
$3,900,000;  in  1836,  to  $21,800,000.    Exports  in  1835  were 

♦  Webster's  Speecbso  :  Tappan,  Boston,  vol.  3,  p.  200. 


100 


AMERICAN  FINANCES. 


$58,524,00;  imports,  $49,575,000.  In  1836,  exports  were 
$106,570,000,  and  imports  $158,811,000.  There  was  a  surplus 
revenue  at  that  time,  and  the  Government  was  out  of  debt. 
The  surplus  was  distributed  among  the  States.  In  1836  the 
"  specie  circular "  was  issued,  in  which  the  Grovernment 
refused  bank  notes  for  public  dues.  This,  with  the  Sub- 
Treasury  Act  of  1840,  by  the  provisions  of  which  the  Secre- 
tary of  the  Treasury  was  prevented  from  depositing  public 
funds  in  the  banks,  effected  a  complete  divorce  of  bank  and 
Government.  The  contest  was  again  opened  during  the 
rebellion,  resulting  in  the  National  Bank  system. 

We  quote  the  following,  with  regard  to  the  bank,  from 
Sumner: 

"  The  Bank  of  the  United  States,  whose  charter  had  now  ex- 
pired, obtained  a  charter  from  the  Legislature  of  Pennsylvania,  in  a 
section  of  a  road  bill,  by  bribery,  as  subsequent  legislative  investi- 
gation proved.  It  had  not  yet  paid  back  the  Government  stock  or 
the  Government  dividends,  and  it  continued  to  reissue  the  notes 
of  the  old  United  States  Bank,  which  it  received." 

The   operations   of   the   banks,  from   1834  to  1837, 
changed  the  structure  of  bank  credits  as  follows: 

In  1834. 

Deposits 


had 


Circulation 

Coin 

Loans  &  Discounts. 


2 


%  75,666,986 

94,839,570 

40,000,000 

324,119,499 


In  1837, 


6^n 


$127,397,185 

149,185,890 

37,915,340 

492,278,015 


Deposits 

Circulation.   . . . 

Coin    ^^^^ 

Loans  &  Disct's.r""" 

§  81.  In  England  a  similar  fabric  had  been  built  up,  and 
now  both  were  readj^  for  a  panic.  A  disturbance  in  the 
"  money  of  the  world  "  brought  it  about.  Before  the  reduc- 
tion in  weight,  gold  coin  was  about  4  per  cent,  above  silver, 
which  practically  demonetized  it  in  this  countrj^;  after  the 
change,  gold  was  about  2^  per  cent,  below,  which  brought  it 
into   use,  and  removed  silver,  except    for    change  of  such 

•  Sum.  Hist.  Am.  Cur.,  p.  132. 


GOVERNMENT,  AND  "  WILD-CAT"  BANKING.      101 

denomiuations  as  were  not  coined  in  gold.  This  made  a 
demand  for  gold  in  this  country,  and  the  specie  circular 
added  a  use  that  had  been  performed  by  bank  notes,  viz.: 
payment  of  public  dues.  The  drain  commenced  on  the  Bank 
of  England  in  1836.  It  at  once  began  to  curtail  its  discounts 
by  raising  the  rate,  and  prices  fell,  or,  in  other  words,  money 
went  up  in  value.  This  produced  a  counteracting  "  vacuum," 
and  the  financial  storm  struck  the  New  York  banks  next, 
causing  them  to  suspend  May  10,  1837.  The  contraction 
from  1837  to  1838  was  principally  effected  by  the  New  York 
banks.  They  reduced  their  issues  during  the  year  from 
125,480,000  to  -1^12,920,000.  They  then  tried  to  obtain  a  con- 
ference of  banks  with  a  view  to  resuming,  but  the  United 
States  Bank  refusing,  the  project  was  abandoned. 

The  wheat  crop  failed  in  1837,  and  prices  were  maintained 
to  a  certain  extent  by  short  supply  of  productions.  In  1837 
and  1838  imports  were  greatly  reduced,  and  the  banks  imported 
$5,000,000  of  gold  on  credit  from  England.  A  slight  expan- 
sion of  bank  paper  followed  in  1839,  and  most  of  the  banks 
resumed.  The  final  collapse  was  postponed;  in  America  by 
the  import  of  coin,  and  in  England  by  an  increase  of  bank 
notes.  These  notes  were  used  as  basis  by  the  country  banks, 
and  the  apparent  supply  of  ''  wheat"  was  thereby  increased. 

During  1838  a  large  amount  of  loans  were  effected  by 
American  banks,  States,  and  individuals.  This  produced 
another  drain  of  coin  from  the  Bank  of  England;  the  rate  of 
discount  remaining  at  2^^  to  3.t  per  cent.  The  bank  now 
rapidly  advanced  the  rate  to  64-  per  cent.,  and  this  shut  off 
further  aid.  The  old  United  States  Bank  lost  heavily  on 
cotton  speculations.  It  sold  exchange  iu  New  York,  and 
with  the  funds  received  drew  specie,  which  it  shipped  to  meet 
the  exchange.  It  got  in  debt  from  ten  to  twenty  millions  in 
New  York,  and  eight  hundred  thousand  in  Boston.  It  finally 
collapsed  in  1841.  Its  capital  stock  was  a  total  loss,  and 
the  $7,000,000  of  Government  stock,  together  with  a  con- 
siderable dividend  due  the  Government,  was  never  paid.  (See 
Finance  Report,  1873,  page  18.)     From  1839  to  1843  the 


102  AMERICAN  FINANCES. 

wLole  fabric  of  bank  credits  shrank  enormously,  so  that  in 

1843  it  stood  as  represented  below: 

1813. 

Deposits n  $  56.168,628 

Circulation Pj  58,563,608 

Specie g  33,515,806 

Loans  &  Discounts.  I  I  254,544,937 


The  following  year  tlie  loans  and  discounts  were  reduced 
about  $90,000,000,  and  the  circulation  increased  $17,000,000. 

§  82.  Here  we  have  a  tremendous  reduction  of  the  currency 
and  a  great  fall  of  prices,  accompanied  with  stagnation  of 
production  and  reduction  of  imports  and  exports.  The 
theory  of  over  production  in  this  case  is  an  absurdity.  When 
prices  were  high  in  1836  and  1837,  the  amount  of  imports 
and  exports  were  greatest,  and  there  was  the  greatest  activity 
in  the  productive  industries,  indicating  the  greatest  amount 
of  merchandise  in  market  at  that  time.  In  1843,  although  our 
exports  were  low,  our  imports  were  almost  nothing,  and  thus 
the  "  balance  of  trade  "  was  in  our  favor,  giving  us  an  influx 
of  coin  to  the  amount  of  $20,000,000.  In  order  to  obtain 
this  coin,  however,  we  were  compelled  to  reduce  prices  from 
$55.97  per  ton  in  1837  to  $35.50  in  1843.  The  value  of  money 
was  increased  from  82  to  141  as  measured  by  merchandise. 
The  number  of  bankrupt  business  men  was  estimated  at 
100,000. 

In  1840  the  Sub-Treasury  Act  was  passed,  thus  completing 
the  divorce  of  bank  and  State,  begun  in  the  defeat  of  the  bill 
to  re-charter  the  United  States  Bank. 

§  83.  With  the  expansioi  of  bank  paper  from  1843  to  1850, 
we  find  a  steady  increase  of  loans  and  discounts,  and  corres- 
ponding rise  of  prices,  broken  only  by  the  famine  of  1847, 
which  caused  a  sudden  rise  of  prices  for  export,  paid  for  by 
import  of  coin. 

The  gold  mines  of  California  were  discovered  in  1847. 
The  lines  representing  the  production  of  bullion,  and  coinage 
at  the  mint  Avill  show  where  the  gold  went  to.  Until  1851 
it  nearly  all  went  to  mint,  and  then  into  circulation  or  hoards. 
For  the  first  time  in  this  country,  business  was  done  to  a  con- 


GOVERNMENT,  AND  "  WILD-CAT"  BANKING.       103 


siderable  extent  by  the  use  of  metallic  money  instead  of  credit 
paper.  We  had  been  trying  specie  basis  banking  on  imported 
coin  with  disastrous  results.  We  were  then  producing  specie 
in  excess  of  our  needs.  We  have  actually  imported  coin  but 
once  since  the  discovery  of  the  mines  (in  1861),  until  the 
present  (18S0).  The  banks,  however^  produced  a  panic  in 
1854. 

§  84.  Although  the  value  of  the  metal  had  fallen  from  141 
in  1843  to  87  in  1854,  they  had  correspondingly  inflated 
their  notes,  and  issued  them  largely  in  excess  of  their  means 
of  payment. 

In  1849,  at  the  commencement  of  the  influx  of  gold  from 
the  mines,  the  situation  of  the  banks  was  as  follows: 

1849. 
Deposits 


Circulation 

Coin 

Loans  and  Discounts 

In  1854  it  was  as  follows: 


1854. 


Deposits 

Circulation 

Coin 

Loans  and  Disc. 


91,174,623 
114.743,415 

43,619.368 

332,323,195 


188,188,744 

204,689,207 

59,410,253 

557,397,779 


In  the  meantime  there  had  been  coined  at  the  mint  | 
562,114.  and  an  increase  of  coin  remaining  in  the  country  of 
$215,540,000.  This  panic  is  accounted  for  by  the  tremendous 
expansion  of  bank  paper  and  small  ])asis  in  the  bank.  It 
was,  however,  like  a  panic  in  the  wheat  market  among  the 
"  shorts,"  with  the  elevators  and  barns  full  of  grain.  The 
panic  could  not  last  long.  The  people  were  well  out  of  debt 
and  doing  much  business  with  coin.  Debtors  did  not  suti'er 
much  because  of  sufficient  supply  of  legal  tender  money,  and 
prices  did  not  fall  to  any  great  extent,  as  the  coin  was 
brought  forward  from  hoards  to  cancel  debts. 

§  85.  As  the  gold  fever  began  to  subside,  people  turned  to 
the  productive  industries,  which  were  greatly  stimulated  by 
the  cheapening  of  money.     The  supply  of  coin  in  the  com- 


104 


AMERICAN  FINANCES. 


munity  was  plentiful,  and  the  banks  soon  recovered  their 
credit  and  continued  to  push  their  issues  of  currency  and 
expand  their  loans  and  discounts.     For  1857  the  situation 

was  as  follows: 

1857. 

Deposits. . . 


Circulation 

Coin 

Loans  &  Dis 


230,351,352 

214,778,822 
58,349,838 

684,456,887 


This  time  panic  commenced  in  the  deposit  part  of  the 
structure,  and  in  one  year  it  assumed  the  form  shown  below, 
running  prices  down  from  $59.31  to  $47.96  per  ton,  gold 
rising  in  mercantile  value  from  78  to  95,  changing  every  con- 
tract to  pay  money  19  per  cent,  and  ruining  thousands.  The 
banks  pursued  the  usual  course  of  compelling  their  debtors 
(loans  and  discounts)  to  pay  their  creditors  (deposits  and  cir- 
culation), increasing-  their  hoard  of  coin  instead  of  paying  it 
out  when  it  was  most  needed. 

1858. 

Deposits 

Circulation  .  . 

Coin 

Loans  and  Dis 


185,932,049 

155,208,344 

74,412,832 

583,165,242 

From  1853  the  export  of  bullion  had  been  increasing,  as 
will  be  seen  by  the  diagram,  so  that  the  stock  of  coin 
increased  only  $44,634,000  in  four  years.  From  1850  to  1853 
it  had  been  increased  $183,852,000,  yet  the  production  had 
been  about  uniform  during  both  periods.  Outside,  gold  was 
not  available  to  the  banks  as  before.  Contraction  and  fall 
of  prices  was  the  consequence,  and  a  reduction  of  19  per 
cent,  was  this  time  sufficient  to  turn  the  exchanges,  or,  more 
properly  speaking,  to  check  the  outflow  of  coin.  Both  our 
imports  and  exports  of  merchandise  fell  off,  as  is  usual  when 
business  stagnates. 

From  this  time  till  1860  the  usual  process  of  recovery  and 
inflation  followed,  when  the  gathering  war-cloud  began  to 
threaten.  The  bank  paper  was  not  reduced;  the  loans  and 
discounts  fell  off  but  little,  while  both  exports  and  imports 
fell  off  in  1861.     This  year  we  not  only  retained  all  of  the 


GOVERNMENT,  AND  "  WILD-CAT"  BANKING.       105 

coin  we  produced,  but  actually  imported  an  excess  of  S16,- 
000,000,  increasing-  our  stock  over  $61,000,000.  This  action 
was  purely  voluntary,  preparatory  to  the  impending  struggle. 

§  86.  The  banks  suspended  in  December,  1861,  and  from 
that  time  on  we  have  had  paper  basis  banking. 

When  the  banks  suspended,  the  situation  was  as  shown 
below.  There  was  no  panic,  the  banks  had  plenty  of 
coin,  and  prices  were  not  high. 

1861. 


Deposits..  I     i  257,229.562 

Circulat'n  I  I  202.005,767 

Coin  ....  WSA  87,674,507 


L'ns&Dis  696,778,421 


§  87.  During  the  thirty  years  from  1830  to  1860  we  had 
specie  basis  banking  under  conditions  so  diverse  as  to  test 
about  every  phase  of  convertibility  as  a  regulator  of  issue. 
The  first  period  was  with  imported  basis  in  scant  supply  and 
accompanying  panics  in  Europe.  The  next  was  with  home 
production  of  basis  in  plentiful  supply,  both  hoarded  and  in 
use  outside  of  the  banks.  We  are  driven  to  the  conclusion 
that  using  the  "money  of  the  world"  exposes  us  to  the  effect 
of  any  disturbance  in  foreign  countries,  and  those  countries 
to  any  disturbance  here.  We  find  that  inflation  or  panic  in 
both  at  the  same  time  intensifies  the  evils  which  follow,  and 
further,  that  the  duration  and  intensity  of  a  crisis  is  reduced 
in  proportion  as  the  available  legal  tender  exhibits  an  increase 
in  proportion  t  :>  the  debts  to  be  paid.  We  further  conclude 
that  the  inevitable  consequence  of  issuing  notes  in  excess  of 
of  legal  tender  to  redeem  them,  and  of  compounding  deposits 
by  loaning  and  depositing  the  same  money  or  notes  indefi- 
nitely, invariably  and  necessarily  breeds  panics  under  all  cir- 
cumstances. It  is  also  the  practice  of  the  bank  to  curtail 
their  currency  and  loans,  and  hoard  coin  at  a  time  when  they 
are  all  most  needful  to  the  business  community,  thus  saving 
themselves  at  the  expense  of  the  public. 

§  88.  During  the  truce  which  followed  the  contest  over  the 
United  States  Bank,  the  money  question  had  practically  dis- 
appeared from  national  politics.     After  the  tariff"  question 


100  AMERICAN  FINANCES. 

had  been  canvassed,  there  came  a  renewal  of  the  slavery  ques- 
tion, which,  it  was  hoped,  had  been  successfully  settled.  It 
seems,  however,  that  no  possible  compromise,  either  with 
slavery  or  the  money  power,  can  be  final.  The  Government 
must  either  destroy  or  be  destroyed.  The  reader  is  familiar 
with  the  history  of  the  contest  waged  between  the  slave 
power  and  the  people.  The  slave  power,  in  gaining  control 
of  Congress  and  the  Supreme  Court,  in  securing  the  fugitive 
slave  laws  and  a  Dred  Scott  decision,  and  in  attempting  to 
push  its  institution  into  more  territory,  was  only  trying  to 
maintain  its  supremacy  over  popular  will.  Slaveholders  per- 
ceived that  a  growing  sentiment  would  sooner  or  later  culmi- 
nate in  an  expression  adverse  to  slavery.  They  were  but 
doing  what  the  money  power  has  always  done.  The  Mis- 
souri compromise,  in  the  one  case,  and  the  divorce  of  bank 
and  State  in  the  other,  were  drawn  battles,  differing  only  in 
this:  Slavery  never  gained  complete  control,  while  the  banks 
did,  capturing  the  entire  paper  currency  of  the  country. 

When  the  Republican  party  elected  Abraham  Lincoln,  the 
slave  power  saw  the  beginning  of  the  end  of  its  political 
supremacy,  and  it  resolved  upon  a  division  of  the  country 
into  two  nations. 

The  money  power  has  so  far  maintained  its  supremacy  in 
every  contest,  and  should  the  gathering  storm  of  popular 
sentiment  result  in  its  dethronement,  what  will  it  resolve  to 
do?  This  question  is  fraught  with  terrible  import  to  the 
American  people.  This  much  seems  evident:  Slavery  was 
local  and  sectional;  its  success  would  come  easiest  by  division 
and  secession.  Banks  of  issue  are  diffused  and  national; 
hence  division  is  impossible,  and  when  the  ''tug  of  war" 
comes,  usurpation  ayid  despotism  will  be  its  only  recourse. 
We  will  not  further  attempt  to  forecast  the  future,  but  will 
notice  what  slavery  did  in  its  death  struggle.  It  crippled 
our  finances;  stole  our  arms;  availed  itself  of  military  talent 
educated  at  the  Government  expense.  It  hoisted  the  flag  of 
rebellion,  and  for  four  long  years  deluged  the  land  in  blood. 
It  wasted  immense  treasure,  far  in  excess  of  the  so-called 
property  in  dispute,  and,  by  the  vast  expense  and  debt 
incurred,  afforded  to  the  money  power  a  grand  opportunity 


FINANCIAL  LEGISLATION  DURING  THE  WAR.    107 

to  establish  more  firmly  its  control  over  the  currency  and 
fortunes  of  the  nation. 


CHAPTER  XII. 

FIITANCIAL   LEGISLATION   DURING  THE   WAR. 

§  89.  At  the  commencement  of  the  Revolution,  the  Conti- 
nental Congress  issued  $9  of  notes  to  ^600  of  property  in  the 
country,  before  they  depreciated.  Now,  with  a  Government 
and  country  of  nearly  a  century's  added  growth,  and  finances 
in  as  good  condition,  to  say  the  least,  we  find  the  banks  in 
suspension  in  1861,  and  early  in  1862  a  premium  on  gold, 
while  only  $33,460,000  of  Government  notes  had  been  issued. 
To  be  in  like  proportion  (^9  to  $600),  there  should  have  been 
at  least  |1200,000,000.  That  there  was  some  influence  at 
work  other  than  the  natural  laws  of  mone3%  seems  evident. 
The  money  power  had  grown  in  strength  with  the  growth  of 
the  country,  and  had  been  in  full  control  of  the  paper  cur- 
rency since  the  Revolution. 

The  Government,  as  in  the  war  of  1812,  was  again  invad- 
ing its  monopoly  of  issuing  currency.  After  nearly  a  cen- 
tury of  success,  it  was  not  disposed  to  tolerate  such  competi- 
tion. The  banks  of  the  country  represented  a  capital  of 
$429,592,713.  They  had  a  circulation  of  $202,005,767,  with 
loans  and  discounts  to  the  amount  of  $696,778,421. 

During  Buchanan's  administration  the  revenues  were  so 
low  that  the  Government  was  borrowing  money  to  meet  its 
ordinary  expenses.  The  slave  power  was  paving  the  way  for 
rebellion,  and  being  in  control  of  the  Government,  would 
naturally  cripple  it  as  much  as  possible.  One  of  the  last  acts 
of  his  administration,  after  most  of  the  Southern  members 
had  withdrawn,  was  to  authorize  a  loan.  Civil  war  was 
imminent,  and  the  country  in  a  fever  of  expectanc}'.  Cap- 
ital, always  timid  at  such  times,  di*l  not  come  forward  read- 
ily, and  it  was  with  great  diificulty  that  the  loan  was  negoti- 
ated. Added  to  timidity,  many  capitalists  were  in  sympathy 
with  the  defeated  party,  and  would  not  lend  to  a  Government 
about  to  pass  mto  the  hands  of  their  political  enemies. 


108  AMERICAN  FINANCES. 

Thus  commenced  the  war;  and  the  first  Congress  under 
Abraham  Lincoln  came  together  under  circumstances  well 
calculated  to  appall  the  stoutest  hearts.  A  large  portion  of 
the  country  in  cpen  rebellion;  many  of  the  offices,  both  civil 
and  military,  held  by  secret  or  open  enemies;  capital  timidly 
clutching  its  money  bags,  and  refusing  loans  except  at  exor- 
bitant rates.  The  great  masses,  with  few  exceptions,  scarcely 
realized  the  situation.  The  men  of  the  North  responded  to- 
the  call  for  ''three  months  men,"  as  though  going  on  an 
excursion  trip,  rather  than  commencing  the  serious  business 
of  a  life  and  death  struggle;  and  the  general  opinion  was 
that  a  little  flourish  of  trumpets  would  quiet  vhe  disturbance. 

The  disaster  of  Bull  Run  awakened  the  North  to  a  sense 
of  the  situation,  and  dispelled  the  illusion.  Tt  became  evi- 
dent that  a  great  and  doubtful  struggle  must  come,  and  that 
the  Government  must  put  forth  its  entire  strength,  or  the 
nation  would  be  rent  in  twain.  The  primary  consideration 
was  resources.  We  had  no  great  standing  army  nor  vast 
militarj'  supplies.  What  little  arms  and  ammunition  we 
had  were  mostly  in  the  hands  of  the  rebels.  A  great  army 
must  be  created  out  of  the  raw  materials.  Whatever  was  to 
be  done  must  be  done  quickly.  Volunteer  soldiers  could  be 
easily  had.  The  great  question  was  how  to  arm,  equip,  feed, 
and  pay  them.  But  two  ways  were  possible  —  either  to  bor- 
row, or  to  tax.  The  latter  method  was  too  slow  for  the 
emergency.  Borrowing  was  resorted  to,  and  no  adequate 
system  of  taxation  adopted.  The  tariff,  it  is  true,  was 
revised,  though  to  no  adequate  extent,  and  was  more  protect- 
ive than  for  revenue  in  its  operation. 

§  90.  It  would  be  well  to  pause  here  and  examine  the  two 
processes,  as  a  matter  of  political  economy.  In  writing  upon 
this  subject,  John  Stuart  Mill  says: 

*  "If  the  capital  taken  in  loans  is  abstracted  from  funds  either 
engaged  in  production  or  destined  to  be  employed  in  it,  tiieir  diver- 
sion I'roni  that  purpose  is  equivalent  to  taking  the  amount  from 
the  wagt^s  of  the  laboring  classes.  Borrowing,  in  this  case,  is  not 
a  substitute  for  raising  the  supplies  within  the  year.  A  govern- 
ment which  borrows  does  actually  take  the  amount  within  the 
year,  and  that,  too,  by  a  tax  eocclusively  upon  the  laboring  classes; 

•  J.  Stuart  Mill,  rriu.  I'ol.  Economy,  p.  526. 


FINANCIAL  LEGISLATION  DURING  THE  WAR.    109 

than  which  it  could  have  done  nothing  worse,  if  it  had  supplied 
its  wants  by  avowed  taxation,  and  in  that  case  the  transaction 
and  its  evils  would  have  ended  with  the  emergency,  while,  by  the 
circuitous  mode  adopted,  the  value  extracted  from  the  laborer  is 
gained,  not  by  the  State,  but  by  the  employers  of  labor,  the  State 
remaining  charged  with  the  debt  besides,  and  with  the  interest  in 
perpetuity.  The  system  of  public  loans,  in  such  circumstances, 
may  be  pronounced  the  very  worst,  which,  in  the  present  state  of 
civilization,  is  still  included  in  the  catalogue  of  financial  expedi- 
ents." 

It  seems  evident  that  the  men  and  supplies  to  caiTy  on  the 
war  were  drawn  ahnost  entirelj^  from  within  our  own  terri- 
tory, for  at  the  close  of  the  war  very  few  of  our  bonds  were 
hekl  abroad.  If  there  were  no  othei-  unsettled  balances,  they 
would  represent  the  exact  amount  actually  borrowed  by  the 
nation  as  a  whole.  No  other  interest-bearing  debt  was 
necessarj'.  All  the  domestic  debt  represented  domestic  sup- 
plies and  labor  of  our  own  people,  actually  parted  with  and 
consumed.  Somebody  went  without  to  just  that  extent. 
The  nation  as  a  whole  actually  sacrificed  it  all  at  the  time, 
and  could  have  suffered  no  more  by  direct  tax.  Hence,  no 
government  debt  ever  need  be  created  or  bonds  issued  except 
to  borrow  from  some  other  nation  or  for  a  currency.  If 
the  Government  goes  into  the  loan  market,  and  abstracts  10 
per  cent,  of  the  active  money,  prices  fall  to  a  like  amount. 
The  effect  is  easily  seen.  Mr.  A,  with  $10,000  will  loan  the 
Government  $1,000,  and  buy  as  much  as  before  with  the  re- 
maining $9,000,  the  loan  being  actually  reimbursed  to  him  on 
the  spot  by  the  sellers.  During  the  years  1860  and  1861, 
prices  fell  more  than  that.  The  recent  operations  of  the 
Government  are  of  precisely  this  character.  During  the 
fiscal  years  1877,  1878,  and  1879,  the  Government  borrowed 
$169,175,463  and  hoarded  $236,923,211,  there  being  in  the 
Treasury,  June  30,  1876,  $149,909,377,  and  three  years  later, 
$386,832,588.  During  this  time  prices  fell  from  $51.06 
to  $39.71.  During  the  fiscal  year  1880,  the  Secretary  dis- 
bursed of  this  hoard,  $185,743,966,  and  paid  off  $214,778,496 
of  the  public  debt.  A  man  Avith  $100,000  in  1876,  could  have 
loaned  $20,000  to  the  Government,  and  in  1879,  bought  more 
with  the  remaining  $80,000  than  Avith  the  whole  when  the 


110  AMERICAN  FINANCES. 

loan  was  made.  He  would  then  be  able  to  ^et  his  $20,000 
from  the  Government,  and  accumulated  interest,  and  buy 
■with  it  at  a  like  increase  in  value.  This  is  the  true  inward- 
ness of  John  Sherman's  recent  operations. 

The  plea  that  the  people  could  not  stand  taxation  to  carry- 
on  the  war,  is  hardly  tenable  when  we  consider  that  they  did 
actually  part  with  the  supplies  as  it  was,  and  their  willing- 
ness is  amply  proven  by  the  volunteer  armies  n.nd  aid  given. 
In  addition  to  this,  we  exported  more  than  we  imported  up  to 
1864-,  and  did  not  receive  any  aid  from  foreign  countries  till 
the  war  was  about  over.  On  the  contrary,  we  paid  debt 
abroad  and  carried  on  the  war  at  the  same  time.  (See  debtor 
and  creditor  periods  in  table  No.  2). 

Indirectly  the  country  was  taxed  to  furnish  the  supplies  as 
they  were  consumed.  This  was  done  by  loans.  All  capital 
is  either  producing  or  loanable;  if  the  country  is  estimated 
to  be  worth  thirty  billions,  and  only  one  billion  is  in  the 
market  in  the  form  of  loanable  funds,  a  government  could 
soon  consume  this  amount.  Should  it  then  attempt  to  secure 
further  loans,  it  must  abstract  producing  capital  from  the  in- 
dustries. In  order  to  do  this,  ic  must  pay  a  larger  interest 
than  is  being  earned  in  business;  at  once  it  does  this,  the 
productive  industries  are  crippled.  If  now  five  billions  of 
the  thirty  are  loanable  capital,  the  government  can  borrow 
five  times  as  much  before  encroaching  upon  productive  capi- 
tal, and  before  being  compelled  to  pay  either  an  abnormal 
interest,  or  a  shave  on  the  principal,  or  both.  In  a  new 
country  like  this,  with  vast  resources  and  but  little  accumu- 
lated wealth,  the  capital  would  be,  and  was,  a  very  small  per- 
centage of:  the  thirty  billions.  The  G>)vernmeat,  therefore, 
could  not  long  borrow  before  all  the  loanable  capital  would 
be  consumed,  and,  hence,  it  would  be  obliged  to  borrow  any 
furtlier  sums  at  a  great  sacrifice,  while  yet  its  credit  was  per- 
fectly good.  Instead  of  finding  in  this  country  one  billion 
of  lomable  capital,  the  associated  banks,  who  were  the  chief 
lenders,  "susponded,"  or  stopped  loaning,  before  they  had 
parted  with  eighty  millions.  It  is  not  at  all  likely  the 
country  contained  one-tenth  of   a  billion  of  loanable  capital. 

By  direct  taxation,  the  means  necessary  to  carry  on  the 


FINANCIAL  LEGISLATION  DURING  THE  WAR.     Ill 

war  would  have  been  taken  from  the  unproductive  consump- 
tion, or  cousumptioE  of  luxuries  in  the  country.  Th:it  the 
unproductive  consumption  of  a  country  is  enormous  is  read- 
ily seen  in  the  fact  that  if  this  country  had  forgone  the  con- 
sumption of  tobacco  and  alcoholic  beverages,  no  further  tax 
would  have  been  necessary  to  carry  on  the  war. 

§  91.  Following  the  disaster  of  Bull  Run,  came  the  first 
loan  act  proper  of  the  war.  (Act  of  July  17,  1861.)  This 
contained  a  provision  offensive  to  the  money  power,  which  at 
once  revived  the  old  contest  over  the  issue  of  currency.  It 
provided  for  a  loan  of  $250,000,000,  $50,000,000  of  which 
might  be  "demand  notes"  bearing  no  interest  and  payable  on 
demand  at  the  sub-Treasuries  at  Philadelphia,  New  York, and 
Boston;  the  balance  in  7.30  Treasury  notes  or  bonds.  The 
act  of  August  5,  was  supplementary,  and  authorizes  bonds  to 
run  twenty  years  and  beiring  6  per  cent,  interest.  The  sixth 
section  suspends  a  portion  of  the  sub-Treasury  act,  and  author- 
izes deposits  in  solvent  banks,  thus  again  placing  Government 
funds  in  the  hands  of  bankers. 

At  this  point  there  began  a  fight  in  the  rear,  as  it  were. 
While  the  attention  of  the  people  was  fixed  on  the  two  vast 
armies  in  the  field,  struggling  like  great  giants  over  the 
''peculiar  institution"  of  slavery,  there  was  another  contest 
going  on  with  the  money  power,  of  no  less  significance  and 
f  rang  at  with  even  greater  consequences.  With  here  and 
there  an  exception,  the  latter  was  unobserved.  We  were 
successful  at  the  front,  but  again  defeated  by  the  banks. 

By  this  act  it  will  be  seen  that  the  Secretary  could  pay  out 
$50,000,000  of  "demand  notes''  to  all  creditors  willing  to 
receive  them.  Should  they  go  into  circulation,  they  would 
distribute  so  much  debt  among  the  whole  people  without 
interest,  each  being  the  lender  while  he  held  the  note.  The 
other  $200,000,000  were  not  designed  for  a  currency,  and  if 
hoarded  would  be  a  loan  from  capitalists  only.  It  would  not 
be  so  well  distributed,  and  would,  of  course,  bear  interest 
whicli  must  be  paid  by  the  whole  to  a  part.  One  can  readily 
see  wliich  would  be  the  best  currency;  but,  as  Samner  says 
(p.  195),  "  The  202,000.000  of  bank  paper,  or,  rather,  the 
$1.50,000,000  in  the  Northern  States,  was  the  stumbling- 
block  in  the  way  of  all  sound   financial   measures."     The 


112 


AMERICAN  FINANCES. 


banks  were  not  slow  to  see  that  if  the  Government  invaded 
their  special  privilege  of  furnishing  currency  and  borrowed 
directly  from  the  people,  they  (the  banks)  would  be  shorn  of 
their  power  to  draw  interest  on  what  the  people  loaned  to 
the  Government  (as  already  explained).  They  must  either 
provide  some  way  of  "  grinding  the  grist  through  their  mill," 
or  let  it  go  by  default.  This  motive,  rather  than  patriotism, 
gave  rise  to  the  Associated  Bank  scheme. 

§  92.  At  the  invitation  of  Secretary  Chase,  the  bankers  of 
New  York,  Boston,  and  Philadelphia,  were  convened.  The 
result  is  shown  by  the  following  extracts  from  the  pen  of 
Geo.  S.  Coe,  President  of  the  American  Exchange  Bank,  as 
found  in'the  Bankers'  Magazine,  January,  1876  : 

"  It  was  at  once  uuanimously  agreed  that  the  Associated  Banks 
of  the  three  cities  would  take  fifty  millions  of  7.3-10  notes  at  par, 
with  tlie  privilege  of  an  additional  fifty  millions  in  sixty  days,  and 
a  further  amount  of  fifty  millions  in  sixty  days  more,  making  one 
hundred  and  fifty  millions  in  all,  and  offer  them  for  sale  to  the 
people  of  the  country  at  the  same  price,  without  charge.  In  this 
great  undertaking  the  banks  of  Xew  York  assumed  more  than 
their  relative  proportion.  To  insure  full  co-operation  and  success, 
the  expedient  of  issuing  clearing-house  certificates,  and  of  appro- 
priating and  averaging  all  the  coin  in  the  various  banks  as  a  com- 
mon fund,  wliich  had  been  invented  but  the  year  before,  was 
applied  to  this  special  object  with  good  effect.  *  *  * 
The  capitals  of  the  banks  thus  associated  made  an  aggregate  of 
one  hundred  and  twenty  millions,  an  amount  greater  than  the 
Bank  of  England  and  the  Bank  of  France  combined,  each  of  which 
institutions  had  been  found  sufficient  for  the  gigantic  struggles  of 
those  great  nations,  from  time  to  time,  in  conflict  with  all  Europe. 


"  The  following  figures  also  show  that  the  financial  condition  of 
the  banks  at  the  time  was  one  of  great  strength  : 


Liabilities. 

ASSETS  IN 
COIN. 

BANKS. 

DEPOSITS. 

CIRCULATION. 

New  York 

$92,046,308 
18,235,061 
15,335,838 

$  8,521,426 
6,366,466 
2,076,857 

$49,733,090 

Boston 

6,665,929 

Philadelohia 

6,765,120 

$125,617,207 

$16,064,740 
125,617,207 

$142,581,956 

$63,165,039 

"Coinon  hand  equal  to  45  per  cent,  of  all  liabilities." 


FINANCIAL  LEGISLATION  DURING  THE  WAR.     113 

Thus  we  see  a  strong  combination  of  a  vast  amount  of 
corporate  capital  ostensibly  organized  to  aid  the  Govern- 
ment.    Mr.  Coe  goes  on  to  say  : 

"  A  great  merit  of  this  bank  combination,  at  that  critical  mo- 
ment when  the  life  of  the  nation  hung  in  the  balance,  consisted 
in  the  fact  that  it  fully  committed  the  hitherto  hesitating  moneyed 
capital  of  the  North  and  East  to  the  support  of  the  Government. 
The  bank  officers  and  directors  who  thus  counseled  and  consented 
were  deeply  sensible  of  the  momentous  responsibility  which  they 
assumed ;  but  all  doubt  and  hesitation  were  instantly  removed, 
and  perfect  unanimity  was  secured  by  the  question,  '  What  if  we 
do  not  unite  ? ' " 

That  was  the  question.  He  would  have  us  infer,  however, 
that  the  disaster  to  be  dreaded  was  to  befall  the  Government, 
when  the  fact  was  that  the  150,000,000  of  demand  notes  was 
the  cloud  no  bigger  than  a  man's  hand  that  had  scared  the 
banks,  and  with  good  reason,  for  if  they  did  not  unite,  the 
Government  would  deal  directly  with  the  people,  thus  ignor- 
ing the  banking  interest.     He  then  sets  forth  this  scheme,  as 

follows  : 

"  The  problem  to  be  practically  resolved  by  the  banks  was  this : 
How  can  the  available  capital  be  best  drawn  from  the  people,  and 
devoted  to  the  support  of  Government,  with  the  least  disturbance 
to  the  country  v  *  *  *  *  * 

"  Accordingly,  it  was  at  once  proposed  to  the  Secretary  that  he 
should  suspend  the  operations  of  the  Sub-Treasury  Act  in  respect 
to  these  transactions,  and,  following  the  course  of  commercial 
business,  that  he  should  draw  checks  upon  some  one  bank  in  each 
city  representing  the  association,  in  small  sums  as  required  in 
disbursing  the  money  thus  advanced.  By  this  means  his  checks 
would  serve  the  purpose  of  a  circulating  medium,  continually  re- 
deemed, and  the  exchanges  of  capital  and  industry  would  be  best 
promoted." 

This  Mr.  Chase  very  properly  refused  to  do,  and  so  brought 
the  matter  to  a  focus.  The  African  in  the  fence  appears  in 
the  following: 

"  A  question  of  the  expediency  of  putting  out  the  circulating 
notes  was  immediately  raised  by  one  of  its  members.  A  very 
small  amount  had  been  emitted.  The  Treasury  was  empty  of  coin 
to  redeem  them,  and  could  only  be  replenished  by  the  proceeds  of 
the  bank  loans.  It  was  evident  to  the  bank  officers  that  they 
could  not  sustain  coin  payments  if  the  transfers  from  their  vaults 
to  that  of  the  Treasury  were  subject  to  be  intercepted  and  ab- 

8 


114  AMERICAN  FINANCES. 

sorbed  by  these  notes  of  Government.  Nor  could  the  banks  receive 
them  xipon  deposit  from  the  public  as  money,  wiiile  tliey  weie 
responding  to  the  Government  and  to  their  own  dealers  in  coin. 
It  was  an  inflation  of  the  currency  in  the  form  most  emiiurrassing 
to  the  enterprise  they  had  commenced.  Accordingly,  tlie  Secre- 
tary was  urgently  solicited  to  refrain  from  exercising  the  discre- 
tionary powers  given  him  of  creating  the  Treasury  currency  until 
all  other  means  were  exhausted.  In  response  to  a  resolution  to 
that  effect,  tlie  Secretary  assured  the  bank  ollicers  of  his  ac<iuies- 
cence  in  their  suggestion,  but  at  the  same  time  insisted  that  it 
was  improper  for  a  public  otH'jer  to  openly  pledge  himself  notio 
exercise  a  power  conferred  by  the  law." 

Their  proposition  was  i-ubstautially  this:  We,  the  Asso- 
ciated Banks,  have  $63,165,039  of  money,  ichivh  we  propose 
to  keep.  We  owe  the  public  $16,964:,749,  payable  on  demand, 
ivhich  ive  don't  intend  to  pay  if  we  can  avoid  it.  We  will 
pretend  to  lend  you  $150,000,000,  and  draw  interest  on  the 
same;  but  we  intend  to  persuade  the  people  to  do  the  lending^ 
and  take  our  promises  to  pay  them  $150,000,000  more,  mak- 
ing in  all  $166,964,749.  This  will  be,  of  course,  over  $100.- 
000,000  more  than  we  possess.  In  order,  therefore,  to  succeed 
in  avoiding  payment,  it  becomes  necessary  that  we  should 
never  be  asked  to  paj'.  The  people  are  in  the  habit  of 
receiving  pay  in  our  notes,  so  you  can  check  on  us  and  borrow 
of  them,  and  we  will  salt  away  the  6  per  cent,  bonds  for  their 
loans  as  long  as  the  people  mil  take  our  notes.  They  don't 
understand  "finance"  as  we  do,  and  you  cannot  get  along 
without  us.  Now,  Mr.  Chase,  if  y(|u  put  out  these  demand 
notes,  the  people  will  be  silly  enougli  to  demand  something. 
We  have  their  confidence,  and  if,  instead  of  a  demand  note, 
you  give  them  a  check  en  one  of  us,  when  we  cash  the  check 
with  our  notes  they  will  imagine  themselves  i>aid.  Your 
checks  will  operate  as  currency,  but  will  not  inflate.  Your 
de.nand  notes  will  also  go  into  circulation  if  issued,  and  Avill 
inflate.  That  was  not  (ill.  The  programme  contemplated 
continuing  this  confidence  game  indehnitoly  Jis  will  be  seen 
by  ilie  following  from  Henry  V.  Poor. 

"The  banks  assumed  that  as  the  ordiiary  operations  of  the 
public  had  no  tetidcix-y  to  wil!\draw  their  coin,  lliosc  of  (rovern- 
meut.  if  conducted  in  a  similar  maimer,  would  exert  no  such 
tendency;  that  in  this  way  the  war  niigl't  be  carried  on  by  the 
use  of  their  paper,  symbolizing  uierchandi.^e  at  the  value  of  coin." 


FINANCIAL  LEGISLATION  DURING  THE  WAR.    115 

Mr.  Chase  very  properly  refused  to  become  a  party  to  any 
such  scheme,  thiuking,  no  doubt,  that  borrowing  notes  and 
paying  interest  to  their  maker,  while  taxing  the  real  lender 
for  the  same  hardly  the  thing.  The  lender  would  receive 
notes  in  either  case:  bank  notes  in  the  one,  and  Government 
notes  in  the  other.  He  therefore  demanded  money,  instead 
of  promises, ''  greatly  to  the  astonishment "  (?)  of  the  bankers. 
They  were  quite  successful  in  their  scheme  even  then,  for 
Mr.  Coe  tells  us  that  the  coin  returned  to  them  on  deposit  in 
about  one  week  after  being  paid  into  the  Treasury.  It  oper- 
ated thus:  The  bank  would  pay  Chase  $1,000  in  coin;  Chase 
would  pay  it  to  B  for  beef;  B  would  pay  it  into  the  bank  and 
check  out  bank  notes.  The  bank  would  be  a  $1,000  bond  in 
and  Sl.OOO  of  promises  out.  Mr.  Coe  gives  the  result  of  paying 
out  $80,000,000,  as  follows: 

"After  taking  the  third  amount  of  fifty    millions  by  the  Asso- 
ciated Banks,  those  in  New  York,  who  had  at  that  time  paid  in  of 
their  proportion  over  eighty  millions  in  all,  found  themselves  in 
this  position: 
Their  aggregate  coin,  which,  on  the  17  of  August,  was 

before  the  first  payment  into  the  Treasury $49,7.33,990 

On  December  7th 42,318,610 

A  reduction  of  only $  7,415,380 

and  the  other  cities  in  like  proportion." 

But  there  was  danger  that  if  the  thing  was  continued  too 
far,  they  might  be  called  upon  actually  to  pay  their  notes. 
As  every  demand  note  occupied  a  place  where  a  bank  note 
might  be.  the  former  drawing  no  interest,  while  the  latter 
would,  something  had  to  be  done.     Mr.  Coe  goes  on  to  say: 

"  But  at  this  time  the  demand  notes  were  paid  out  freely  by  the 
Treasury,  and  began  to  appear  as  a  cause  of  embarrassment 
among  the  banks,  which  were  pressed  to  receive  them  on  deposit: 
and  while  they  could  not  decline  them  without  diminishing  public 
confidence  in  the  Government  credit,  they  could  no  give  them  cur- 
rency without  impairing  their  own  specie  strength.         *        * 

*  *  *  And  on  the  28th  of  December,  after  conference 
with  the  Secretary,  in  which  he  still  adhered  to  the  views  before 
expressed,  it  was  decided  as  expedient  for  the  banks  to  suspend 
specie  payments." 

H  id  th^y  be.m  really  solicitous  for  the  credit  of  the  G-ov- 
ernmeut  instead  of  their  per  cent..,  they  could  have  made  all 


116  AMERICAN  FINANCES. 

secure  retiring  their  currency  when  there  was  an  excess.    In- 
stead, however,  with  a  contract  calling  for  nearly  $70,000,000 
more,  they  "  found  it  expedient  "  to  suspend  further  payment, 
for  fear  that  something  might  happen.     Meanwhile  men  had 
left  wives,  children,  and  homes;  sons  had  left  parents,  lovers 
sweethearts,  and  bared  their  breasts  to  the  leaden  hail  of  war. 
They  had  contracted  to  abide  by  the  Government,  come  what 
might,  though  it  cost  all  that  is  worth  living  for.     Suppose 
sickness  or  trouble  at  home  had  called  one  of  the  boys  in 
blue;  or  when  he  saw  the  long  lines  of  glittering  steel  borne 
by   the   ''Johnnies,"    or   heard    the    bellowing    thunder   of 
rebel  artillery,  he  had  begun  to  fear  that  something  might 
happen  to  him,  and  deem  it  "  expedient  to  suspend  "  opera- 
tions, we  all  know  he  would  have  been  called  a  coward,  and 
a  traitor,  and  shot  like  a  dog.     It  is  difficult  to  distinguish 
one  deserter  from  another;  of  the  two  the  soldier  would  have 
the  better  excuse,  his  life  would  be  in  danger.     In  the  case 
of  the  bankers,  it  was  mere  expediency;  their  pockets  were 
in   danger.      When   governments   shoot  deserting   soldiers, 
they  should  in  all  fairness  suspend  suspending  bankers — at 
the  end  of  a  rope.  The  Associated  Banks,  who  were  the  prime 
movers  in  this  business,  it  will   be  seen  by  Mr.  Coe's  state- 
ment, had  over  $60,000,000  of  coin  with  which  to  pay  their 
notes  to  the  amount  of  $16,000,000.     They  were  not  bank- 
rupt, and  unable  to  pay,  by  any  means. 

Mr.  Coe  says  of  the  suspension : 

"At  that  moment  the  Associated  Banks  yet  held  over  forty  mil- 
lions in  coin,  and  it  Avas  still  possible  for  them  to  continue  their 
advances  to  the  Government  but  for  the  two  obstacles  thus  inter- 
posed." 

To  show  that  this  suspension  was  by  agreement,  and  coerc- 
ive on  the  part  of  the  banks,  we  quote  the  following  from 
Sumner's  History  of  the  American  Currency: 

*  "  In  the  last  days  of  December,  1861,  all  the  banks  suspended 
This  they  did  without  any  earnest  attempt  to  avoid  it,  and  cer- 
tainly without  any  necessity.  Instead  of  regarding  a  susj)ension 
as  a  calamity  to  be  submitted  to  (mly  after  years  of  war,  when  the 
national  resources  should  l)e  actually  exliausted  (astiie  suspension 
of  the  Bank  of  England  proved  that  it  is),  many  looked  upon  it  as 
the  natural  preparation  for  war." 


•Sumner's  Hist.  Am.  Cur.,  p.  194. 


FINANCIAL  LEGISLATION  DURING  THE  WAR.    117 

Heurj'  V.  Poor  gives  the  following  statement  of  the  situ- 
ation at  that  time: 

*  "  The  exports  of  specie  from  the  country  the  year  preceding  the 
war,  exceeded  the  imports  by  $57,996,154.  During  the  first  year  of 
the  war,  and  before  the  banlis  had  suspended,  the  imports  over 
exports  equaled  $22,558,791,  making,  in  a  single  year,  a  change  in 
favor  of  the  country  of  $80,554,945.  Xo  sooner  was  trouble  with  the 
South  apprehended,  than  the  iSTorthern  banks  began  instinctively  to 
strengthen  themselves.  On  the  1st  of  January,  18(50,  before  any  sus- 
picion or  distrust  was  excited,  and  when  the  country  was  in  an  emi- 
nently sound  and  prosperous  condition,  the  coin  reserves  of  the 
banks  of  the  three  great  cities— New  York,  Boston,  and  Phila- 
delphia—equaled $29,822,320 ;  of  which  the  banks  of  New  York 
held  $20,119,779;  those  of  Boston,  $4,796,000 ;  those  of  Philadelphia, 
$4,906,541.  On  the  1st  of  January,  1861,  when  the  disruption  of 
the  country  seemed  imminent,  they  had  increased  their  reserves 
to  $43,S49,(;28 ;  and  on  the  9th  of  August,  1861,  when  they  under- 
took to  aid  the  Government,  to  $63,165,039.  There  was  no  concert 
or  method  in  all  this ;  only  ordinary  prudence.  Even  so  late  as 
1862,  after  the  banks  had  suspended  and  Mr.  Chase  had  drawn 
from  them  $150,000,000,  they  held  $44,887,093  in  coin;  a  sum 
greater  by  $15,000,000  than  that  held  on  the  1st  of  January,  1860." 

Mr.  Poor  adds  the  very  significant  remark:  "Had  he" 
(Secretary  Chase)  "  acceded  to  their  request  at  the  outset,  he 
might  have  availed  himself,  at  the  value  of  coin,  of  every 
dollar  of  capital  in  the  country  which  could  have  been  spared 
for  the  war."  In  other  words,  if  the  Government  would 
allow  the  banks  to  dictate  its  policy,  they  could  easily  appear 
to  lend  to  the  Government  almost  any  amount,  while  from 
sheer  necessity  avoiding  actually  lending  anything.  He  did 
not  "accede,"  hence  their  effort  at  coercion.  They  then 
proposed  another  scheme,  which  was  very  similar  in  charac- 
ter to  the  first.     It  was  set  forth  by  Mr.  Coe  as  follows: 

"  Thus,  as  a  suspension  of  coin  payments  was  about  to  be  declared, 
it  was  practicable  to  preserve  from  distribution  and  set  aside  the 
forty  millions  of  coin  then  owned  by  the  banks,  together  with  one 
hundred  and  fifty  or  sixty  millions  of  Government  bonds,  which 
could  be  taken  by  them  as  a  special  security  for  two  hundred  mill- 
ions of  notes,  which  could  then  be  immediately  issued  by  the  Asso- 
ciated Banks  from  their  own  plates,  and  be  verified  and  made 
national  by  the  stamp  and  signature  of  a  Government  officer. 
And  that  such  an  issue,  so  supported  by  coin  and  bonds,  at  once 

*  Money,  Its  Laws  and  History,  p.  536. 


118  AMERICAN  FINANCES.  / 

simple  and  expeditious,  would  serve  the  temporary  purpose 
required,  with  little  if  any  deterioration  below  coin  value;  and 
that  it  would  be  then  practicable  for  the  banks  to  continue,  with- 
out further  agitation,  their  advances.  But  the  Secretary  declined 
to  entertain  this  suggestion,  preferring  the  system  of  National 
Banks,  which  he  had  already  conceived." 

That  u  to  say:  Authorize  banks  to  issue  200,000,000  of 
promises  to  pay  when  they  were  in  suspension,  and  refusing 
to  pay  those  they  had  ah'eady  uttered.  With  these  promises 
allow  them  to  buy  Government  bonds.  By  this  means  put 
$200,000,000  into  the  possession  of  the  banks  and  pay  them 
interest  on  the  same,  while  receiving  in  return  nothing  but 
promises  to  pay,  these  promises  resting  upon  security  fur- 
nished by  the  Government  itself.  A  royal  scheme  indeed 
for  the  banks.  If  the  Government  could  inflate  the  currency 
with  bank  notes  and  keep  them  at  par,  it  could  do  the  same 
with  its  own  notes.  If  the  Government  furnished  to  the 
banks  Government  security  to  keep  worthless  paper  at  par 
with  coin,  it  could  furnish  itself  the  same  security  without 
making  princely  gifts  to  anyone,  and  then  paying  tribute  to 
the  recipient. 

§  93.  Conceding  that  the  then  existing  system  of  bank  note 
currency  ought  not  to  be  disturbed  by  the  Government,  the 
scheme  of  the  Associated  Banks  had  some  merit.  For  it  will 
be  observed  that  if  B  saw  fit,  instead  of  checking  out  bank 
notes  for  his  $1,000  received  for  beef,  he  could  have  a  Gov- 
ernment note  drawing  7  3-10  pre  cent,  for  three  years,  or  a 
bond  drawing  6  per  cent,  for  twenty  years.  It  wouLl  be  a 
sort  of  convertible  bond  scheme,  advocated  by  some,  with 
modifications  however. 

The  non-interest  currency  would  circulate  for  the  benefit 
of  the  banks,  and  be  convertible  into  coin  on  demand.  It 
would  be  a  compound  bond  and  specie  basis  plan.  At  first, 
with  low  currency  and  demand  for  beef  active,  B  would  not 
take  bonds,  but  currency;  as,  he  accumulated  funds,  he  would 
take  bonds,  provided  they  drew  interest  enough  to  compete 
with  other  borrowers.  But  the  impetus  given  to  business  by 
the  first  inflation  wouhi  raise  prices,  this  advance  would  bean 
apparent  profit  on  merchandise  and  loss  on  holding  money, 
and   most  men   would  prefer    business   investments   to   the 


FINANCIAL  LEGISLATION  DURING  THE  WAR.     119 

bonds  or  notes.  After  a  time  inflation  of  pi'iees  would  turn 
the  ''  balance  of  trade,"  and  the  exj>ort  of  coin  would  start  a 
panic,  fall  of  prices,  and  run  of  b:ink  notes  for  redemption. 
With  prices  falling,  bonds  would  be  better  than  business 
investment,  and  would  suck  up  the  currency  rapidly.  This 
would  serve  to  enhance  contraction  at  a  time  when  expansion 
would  cure  the  disastrous  effect  upon  business  caused  by  the 
panic.  Until  the  collapse  should  come,  the  bank  scheme 
would  appear  to  operate  finely,  and  the  war  could  have  been 
carried  on  better  with  the  co-operation  of  the  banks  than 
with  them  making  war  on  the  Government  credit^  by  refus- 
ing its  issues  as  money  at  their  counters.  The  action  of  the 
banks  was  simply  a  declaration  of  war  o;;  the  Government 
finances,  and  again  was  opened  the  old  issue  of  bank  paper 
versus  Government  money. 

§  94.  The  deuiand  notes  were  at  first  receivable  for  public 
dues,  and  convertible  into  coin  on  demand  at  New  York, 
Philadelphia,  and  Boston ;  afterward  St.  Louis  and  Cincin- 
nati were  added. 

As  soon  as  the  banks  suspended  the  Government  did  the 
same,  and  from  January  1,  1862,  to  January  1,  1879,  these 
notes  were  not  redeemed  in  coin;  they  were  redeemable  in 
greenbacks  only,  yet  were  worth  as  much  as  coin,  and  the 
bulk  of  them  was  received  for  imports  at  par  with  coin,  and 
retired  by  the  Government.  At  the  time  of  suspension  there 
was  outstanding  833,460,000.  Secretary  Chase  continued 
their  issue,  however,  and  an  act  aj)proved  February  12,  1862, 
authorized  $10,000,000  more,  making  $60,000,000  in  all. 
These  were  paid  to  the  soldiers,  and  by  them  sent  to  their 
families.  They  were  refused  by  the  merchants  in  many 
cases,  ''  because  the  banks  of  the  Eastern  cities  had  issued 
orders  that  they  would  not  be  received  from  the  country 
banks  in  settlement  of  balances,  or  on  deposit  as  current 
funds."  They  were  returned  to  the  army  in  considerable 
amounts,  and  presented  at  the  Ti-easury  Department,  elicit- 
ing from  Secretary  Chase  the  reply:  "We  have  no  money, 
the  banks  have  suspended  and  locked  up  their  coin."  The 
curbstone  bi-okers  then  bought  these  notes  at  a  discount. 
Thus  the  banks  succeeded  at  the  outset  in  forcing  suspension 


120  A3IERICAN  FINANCES. 

and  discredit  upon  the  Government,  in  their  efforts  to  pro- 
tect their  "  peculiar  institution."  We  had  two  enemies  on 
our  hands  at  once — the  sUive  poAver  attacking  our  armies,  and 
the  money  power  our  finances.  The  army  took  care  of  the 
former,  but  our  financial  tacticians  were  unequal  to  the 
latter.  The  army  learned  in  time  that  the  rebels  were 
enemies,  and  to  be  treated  as  such;  Congress  took  counsel  of 
the  money  power,  and,  with  the  exception  of  a  noble  few, 
did  not  comprehend  the  situation.  The  result  was  disastrous, 
of  course.  These  bits  of  paper,  known  as  old  demand  notes, 
are  to  our  finances  what  the  monitor  was  to  our  navy,  and 
give  the  lie  to  all  the  theories  of  the  bullionists  regarding  the 
necessity  of  convertibility  to  give  value  to  paper  money. 
They  are  the  only  full  legal  tender  paper  ever  issued  by  this 
Government,  and  have  been  as  good  as  gold  ever  since  they 
were  made  to  legally  perform  all  the  functions  of  gold  coin 
in  business  transactions. 

The  Government,  at  the  outset,  should  have  either  sur- 
rendered its  finances  to  the  banks,  or  else  adopted  the  policy 
of  independent  action  in  spite  of  them,  and  treated  them  as 
enemies  of  the  Government  currency  and  credit,  which  they 
really  were.  The  currency  competed  with  theirs,  and  the 
lower  the  Government  credit,  the  cheaper  the  bonds,  and  the 
more  profit  on  ''credit  strengthening'^  plasters  eventually. 

After  suspension  there  was  but  one  course  open.  The 
Government  was  compelled  to  issue  paper  money,  and  deal 
with  the  people  directly,  by  issue  of  currency  and  taxation. 
Had  Congress  imderstood  finance  as  well  as  the  bankers,  and 
had  it  made  laws  for  the  benefit  and  protection  of  the  people, 
instead  of  resorting  to  expedients  and  compromises,  much 
trouble  and  loss  would  have  been  avoided. 

§  95.  The  second  session  of  the  Thirty-seventh  Congress 
commenced  December  2,  1861.  We  had  reached  a  crisis  in 
our  finances  that  required  prompt  action.  The  expenditures 
were  over  a  million  dollars  per  day,  and  no  adequate  taxation 
had  been  resorted  to.  It  was  natural  that  Congress  should 
look  to  the  Treasury  Department  for  suggestions,  and  we 
find  from  this  time  on  the  policy  of  the  Government  has 
been  almost  entirely  conformed  to  the  dictation  of  the  Secre- 
tary of  the  Treasury. 


FIl^ANCIAL  LEGISLATION  DURING  THE  WAR.    121 

In  his  report  of  December  9,  1861,  Secretary  Chase  called 
attention  to  the  fact  that  the  circulation  of  bank  notes 
constituted  a  loan  from  the  public  to  the  banks,  without 
expense  to  them  (except  the  issue  of  notes  and  interest  on 
reserves),  and  suggested  the  propriety  of  transferring  this 
wholly  or  in  part  to  the  Government  representing  the  people. 

He  then  gave  the  cue  to  the  subsequent  legislation  in  the 
following  language: 

"  It  has  been  well  questioned  by  the  most  eminent  statesmen 
whether  a  currency  of  bank  notes,  issued  by  local  institutions 
inider  State  laws,  is  not,  in  fact,  prohibited  by  the  liTational  Con- 
stitution. Such  emissions  certainly  fall  within  the  spirit,  if  not 
within  the  letter,  of  the  constitutional  prohibition,  of  the  emis- 
sion of  bills  of  credit  by  the  States,  and  of  making  by  them  of 
anything  except  gold  and  silver  coin  a  legal  tender  in  payment  of 
debts. 

"  However  this  may  be,  it  is  too  clear  to  be  reasonably  disputed, 
that  Congress,  under  the  constitutional  power  to  lay  taxes,  to 
regulate  commerce,  and  to  regulate  the  value  of  coin,  possesses 
ample  authority  to  control  the  credit  circulation  which  enters  so 
largely  into  the  transactions  of  commerce,  and  affects  in  so  many 
ways  the  value  of  coin. 

"In  the  judgment  of  the  Secretary,  the  time  has  arrived  when 
Congress  should  exercise  this  authority. 

On  the  question  of  the  constitutional  law,  he  said: 
"  If  the  Secretary  has  omitted  the  discussion  of  this  constitu- 
tional power  of  Congress  to  put  this  plan  into  operation,  it  is  be- 
cause no  argument  is  necessary  to  establish  the  proposition,  that 
the  power  to  regulate  commerce  and  the  value  of  coin  includes 
the  power  to  regulate  the  currency  of  the  country,  or  the  collateral 
proposition,  that  the  power  to  effect  the  end  includes  the  power 
to  adopt  the  necessary  and  expedient  means." 

This  argument  has  never  yet  been  answered,  and  never 
can  be,  by  the  advocates  of  a  currency  under  corporate 
control. 

He  then  set  forth  two  schemes  for  the  consideration  of 
Congress.  The  first  was  a  further  issue  of  demand  notes  and 
withdrawal  of  bank  notes  to  make  room  for  them,  thus 
transferring  the  entire  currency  to  the  Government.  The 
other  was  substantially  the  National  Banking  system  as  ulti- 
mately adopted,  which  left  the  currency  in  the  hands  of 
corporations.     After  discussing  both,  he  concluded  by  recom- 


122  AMERICAN  FINANCES. 

mending  the  latter  plan.  He  contemplated  convertibility, 
however,  in  both  schemes.  (The  banks  had  not  suspended  at 
that  time). 

§  96.  These  two  schemes  were  alike  in  some  respects;  in 
others  they  were  radically  different.  Both  were  specie  basis, 
with  convertibility  as  a  regulator.  Bothalike  would  furnish 
a  uniform  currency,  bearing  the  impress  of  Government 
authority.  Both  would  ultimately  rest  upon  the  Govern- 
ment credit  for  their  value;  tlie  first  directly,  the  second  in- 
directly. Both  would  represent  a  loan  from  the  holder  to 
the  issuer.  Both  would  be  an  improvement,  in  some  respects, 
on  the  State  bank  issues.     But  here  the  parallel  ends. 

The  first  would  be  a  loan  from  the  public  to  the  Govern- 
ment; the  second  to  the  banks.  The  first  would  circulate  for 
the  benefit  of  the  people;  the  second  for  the  benefit  of  cor- 
porations. The  first  would  enable  the  Government  to  realize 
the  Secretary's  idea  of  its  constitutional  power  over  the  cur- 
rency; the  second  would  enable  the  banks  to  determine  the 
value  of  monej^  by  inflating  and  contracting  their  issues. 
The  former  would  be  in  no  greater  danger  of  becoming 
worthless,  than  the  latter.  The  first  would  be  issued  accord- 
ing to  acts  of  a  Congress  responsible  to  the  people;  the 
second  according  to  acts  of  the  Associated  Banks,  responsible 
to  nothing  but  their  own  avarice.  The  Government  could 
provide  a  fund  for  redemption  in  coin  as  easily  as  the  banks. 
The  Government  could  redeem  in  taxes  if  it  had  no  coin;  the 
banks  could  not.  The  Government  could  make  its  issue  a 
legal  tender  requiring  no  redemption;  the  banks  could  not. 
The  Government  would  be  no  more  likely  to  over-issue  iij 
time  of  danger  or  pressure,  than  the  banks  would  in  time  of 
a  speculative  "  boom."  The  danger  of  depreciating  and 
rendering  worthless  Government  currency,  was  no  greater 
than  the  risk  of  depreciating  and  rendering  worthless  Govern- 
ment bonds,  on  which  he  i)roposed  to  secure  the  bank  paper. 
The  risk  of  national  bankruptcy,  with  all  the  resources  of  the 
nation  taxable,  is  certainly  no  greater  than  that  a  small  part 
of  the  taxal>le  people  should  fail.  The  first  plan  would  dis- 
tribute a  vast  amount  of  Government  debt  among  the  whole 
people,  who  would  be  directly  interested  in  the  loan.     The 


i 

FINANCIAL  LEGISLATION  DURING  THE  WAR.    123 

second  plan  would  fill  their  pockets  with  the  promises  of  a 
boiul-holdiiig  aristocracy,  who  would  be  interested  in  making 
their  bonds  as  profitable  as  possible,  and  enlarging  their  debt 
and  avoiding  its  payment  as  long  as  possible. 

The  great  masses  of  the  people  who  came  to  the  rescue  of 
the  Grovernment,  by  the  thousands  and  hundreds  of  thous- 
ands, at  the  very  time  the  Secretary  was  writing,  and  laid 
down  life  and  limb  for  thirteen  dollars  a  month  in  the  former 
kind  of  paper,  would  be  as  likely  to  cement  the  Union  by  still 
further  loans,  without  interest,  as  would  those  wealthy  gentle- 
men of  New  York,  Philadelphia,  and  Boston,  who  higgled 
about  their  per  cent,  of  interest,  lobbied  the  Senate  to  secure 
coin  interest,  deserted  their  contract  with  the  Government 
with  over  $40,000,000  of  gold  in  their  safes,  and  refused 
another  dollar  of  it  unless  they  could  dictate  the  policy  of 
the  Government. 

By  the  former  arrangement  the  Government  would  secure 
a  loan  without  interest  either  way,  by  the  latter  the  people 
would  pay  the  banks  for  the  privilege  of  lending  to  them. 

In  view  of  these  facts  its  seems  strange  that  a  man 
capable  of  such  logic  as  evinced  in  some  of  the  remarks 
quoted  should  prefer  the  latter  plan.  We  can  account  for 
it  only  on  the  ground  of  his  statement  that  this  plan  would 
still  preserve  the  bank  of  issue  in  this  country,  while  the 
former  ^rould  not.  This  seems  to  be  the  gist  of  the  whole 
argument. 

The  banks  did  not  like  either  scheme,  but  of  the  two  they 
of  course  preferred  the  latter.  They  would  rather  have  half 
*  a  loaf  than  no  loaf  at  all  ;  but  they  preferred  to  grab  all  they 
could.  Under  most  State  bank  laws  they  could  issue  notes 
to  an  unlimited  extent.  By  this  plan  they  could  draw  only 
about  double  interest  on  their  money.  By  the  Secretary's 
first  plan  they  must  actually  lend  a  dollar  every  time  they 
drew  interest  on  one,  and  being  unable  under  that  plan  to 
draw  interest  on  their  debts,  would  be  compelled  to  pay 
interest  like  honest  men. 

Congress  eventually  pursued  neither  plan,  but  adopted  the 
most  vicious  parts  of  both,  abandoning  specie  and  issuing 
large  quantities  of  Government  paper  in  competition  with 


124  AMERICAN  FINANCES. 

bank  notes.  The  result  was  inflation,  laying  the  foundation 
for  a  change  of  contract  on  an  immense  Government  debt. 

The  first  financial  legislation  of  the  session  was  a  bill 
passed  without  debate  at  the  urgent  request  of  the  Secretary 
of  the  Treasury,  authorizing  an  additional  issue  of  $10,000,000 
of  the  notes  of  July,  1861.  This  was  in  consequence  of  the 
urgent  need  of  funds  to  meet  current  expenses. 

§  97.  The  next  was  the  act  of  February  25, 1862,  commonly 
known  as  the  legal  tender  act.  The  first  section  provides 
for  $150,000,000  of  Treasury  notes,  $50,000,000  in  lieu  of  the 
notes  of  the  preceding  year.  These  notes  were  to  be  a  ''  legal 
tender  for  all  debts,  public  and  private,  except  duties  on 
imports  and  interest  on  the  public  debt."  They  were  made 
receivable  by  the  Government  at  par  on  all  future  loans, 
and  convertible  into  5.20  bonds,  bearing  6  per  cent,  interest 
in  coin.  The  notes  issued  under  this  act  are  comraonlj'' 
known  as  greenbacks,  those  under  the  act  of  July  17,  1861, 
are  known  as  demand  notes.  By  the  act  of  March  17,  1862, 
these  latter  were  made  legal  tender,  and  by  the  original  act 
receivable  for  imports,  so  that  they  became  eventually  the 
only  full  legal  tender  notes.  Neither  were  redeemed  in  coin 
from  January  1,  1862,  to  January  1,  1879. 

The  second  section  provided  for  $500,000,000  of  bonds, 
payable  at  the  option  of  the  Government  after  five  years, 
and  due  in  twenty,  to  be  sold  at  their  market  value.  It  also 
provided  that  all  stocks,  bonds,  and  other  United  States 
securities  were  to  be  exempt  from  State  tax. 

Section  4  provides  for  $25,000,000  of  certificates  of 
deposits  at  5  per  cent. 

Section  5  provides  that  duties  on  imports  should  be 
collected  in  coin  or  notes  heretofore  authorized,  the  coin  to 
be  set  aside  as  a  sinking  fund  for  the  purchase  or  payment 
of  one  per  cent,  of  the  public  debt. 

These  were  the  essential  provisions  of  the  act.  It  will 
be  seen  that  it  differed  materially  from  the  first  plan  pro- 
posed by  the  Secretary.  Some  of  this  difference  was  rendered 
necessary  by  the  action  of  the  banks.  They  had  gone  into 
voluntary  suspension  shortly  after  the  report  was  made,  and 
had  opened  a  "  fire  in  the  rear  "  on  the  Government  credit  by 


FINANCIAL  LELU8LATI0N  DURINU  THE  WAR.    125 

refusing  its  notes  as  money  from  depositors.  Without 
specie  for  a  basis,  and  the  banks  in  suspension,  the  only 
course  was  to  make  the  notes  lawful  money.  The  following- 
is  taken  from  a  letter  written  by  Mr.  Chase  to  the  Ways 
and  Means  Committee: 

*  "  The  provision  making  United  States  notes  a  legal  tender  has 
doubtless  been  well  considered  by  the  committee,  and  their  con- 
clusion needs  no  support  from  any  observation  of  mine.  I  think 
it  my  duty,  however,  to  say  that  in  respect  to  this  provision  my 
reflections  have  conducted  me  to  the  same  conclusions  they  have 
reached.  *  *  *  *  The  making  them  a  legal  tender  might,  how- 
ever, still  be  avoided  if  the  willingness  manifested  by  the  people 
generally,  by  railroad  companies,  and  by  many  of  the  banking  in- 
stitutions, to  receive  and  pay  them  as  money  in  all  transactions 
were  absolutely  or  practically  universal ;  but,  unfortunately,  there 
are  some  persons  and  some  institutions  which  refuse  to  receive 
and  pay  them,  and  whose  action  tends  not  merely  to  the  unnec- 
essary depreciation  of  the  notes,  but  to  establish  discriminations 
in  business  against  those  who  in  this  matter  give  a  cordial  support 
to  the  Government  and  in  favor  of  those  who  do  not.  Such  dis- 
crimination should,  if  possible,  be  prevented;  and  the  provision 
making  the  notes  a  legal  tender,  in  a  great  measure  at  least,  pre- 
vents it  by  putting  all  citizens  in  this  respect  on  the  same  level, 
both  of  rights  and  duties." 

Compelled  to  abandon  specie,  Congress,  instead  of  making 
paper  money  pure  and  simple,  undertook  to  cling  to  coin. 
By  paying  coin  interest,  and  collecting  coin  imposts,  the 
efiect,  instead  of  demonetizing  coin  and  monetizing  paper, 
was  complex,  and  produced  confusion.  It  made  two  kinds 
of  money,  and  two  kinds  of  Government  creditors.  Selling 
bonds  for  paper,  and  paying  interest  in  coin,  would  increase 
the  interest  as  paper  fell.  For  bonds,  being  exchangeable 
by  statute  for  paper,  dollar  for  dollar,  as  paper  fell  a  given 
amount  of  gold  would  procure  a  larger  amount  of  gold 
interest  bonds. 

If,  to  maintain  the  value  of  the  bonds,  it  was  proper  to 
make  the  interest  payable  in  coin  at  the  present  time,  it  was 
surely  the  part  of  wisdom  to  make  the  principal  payable  in 
coin  in  the  future.  The  need  at  the  time  was  coin.  It 
would  have  been  proper  to  return  coin  after  the  war  should 


•  Globe,  Jan.  28, 1862. 


126  AMERICAN  FINANCES. 

be  over.  Instead,  however,  the  Government  promised  paper 
in  the  future  and  coin  in  the  present,  thus  reversing  the 
correct  polic}'.  Making  the  greenback  partly  money  and 
partly  not.  reduced  its  value.  Creating  special  uses  for  gold 
as  money,  increased  its  value,  or  maintained  it,  to  say  the 
least.  It  was  unjust  to  pay  one  class  in  one  kind  of  money 
and  another  in  a  different  kind.  The  bankers,  who  had 
deserted,  were  to  have  com,  while  the  soldiers,  who  had  not 
deserted,  must  take  paper.  Another  serious  defect  was  that 
no  provision  was  made  to  give  room  for  the  greenbacks. 
Instead  of  a  prohibitory  tax,  or  any  attempt  at  restricting 
the  bank  notes,  the  legal  tenders  furnished  the  basis  for 
further  issues.  They  claimed  the  cause  of  suspension  to  be 
thau  the  Government  had,  by  issuing  $36,460,000  of  notes, 
inflated  the  currency  so  that  they  had  not  sufficient  basis. 
Now  they  extended  their  issues  upon  the  legal  tenders.  Had 
Congress  purposely  set  itself  about  inflating  the  currency, 
it  could  not  have  devised  a  more  effective  plan.  Mr.  Ohase 
advised  the  removal  of  bank  piper  instead  of, such  a  scheme. 
Exempting  the  bonds  from  State  taxr:tion  insured  the 
pov/er  ol'  the  Government  to  borrow,  and  make  the  interest 
less  by  just  the  tax,  and,  although  it  was  the  beginning  of 
an  untaxed  aristocracy,  it  is  but  one  of  the  evils  of  a  govern- 
nipnt  debt. 

The  provision  for  a  sinking  fund  was  absurd,  when  the 
Government  was  borrowing  and  going  in  debt.  Such  legisla- 
tion would  have  been  appropriate  at  the  close  of  the  war. 
No  attention,  however,  was  paid  to  this  provision  In'  the  De- 
partment until  that  time.  It  only  served  to  furnish  a  techni- 
cal ground  for  quibbles  about  the  payment  of  the  5-20 
bonds. 

§  1^8.  The  act  of  March  1,  1862,  authorized  certificates  of 
indebtedness  bearing  6  per  cent,  interest,  and  limited  to  de- 
nominations of  $1,000  or  above.  This  discriminated  against 
the  small  creditors-  of  the  Government,  many  of  whom  could 
not  get  their  pay.  All  having  claims  above  $1,000  could 
have  6  per  cent.,  all  below  could  have  none. 

§  00.  The  act  of  March  IT,  lb62,  provides  in  the  first  sec- 
tion for  the  sale  of  bonds  on  any  terms  for  coin.     This  was 


FINANCIAL  LEGISLATION  DURING  THE  WAR.     127 

necessary,  because  the  coin  in'erest  must  be  met,  and  the  re- 
striction to  market  rate  had  prevented  the  sale  of  bonds  to 
anv  ffreat  extent.  In  the  meantime  the  banks  had  been  un- 
loading  what  bonds  they  took  before  suspension. 

Section  2  of  the  act  added  the  legal  tender  quality  to  the 
demand  notes.  At  that  time  there  were  three' kinds  of  Gov- 
ernment notes;  the  7.30  of  1861,  convertible  into  the  twenty- 
year  sixes  of  the  same  act;  the  demand  notes  which  drew  no 
interest,  were  not  convertible  into  anything  but  greenbacks, 
and  were  receivable  for  imposts;  and  the  greenbacks,  which 
were  worth  98  cents  in  coin.  The  demand  notes  were  at  that 
time  worth  more,  and  the  7.30's  a  little  less  than  greenbacks. 

§  100.  It  will  be  seen  that  paying  duties  on  imports  was  a 
use  that  conferred  more  value  at  that  time  than  either  7.3  per 
cent,  interest,  or  6  per  cent,  in  coin,  or  legal  tender;  and  also 
that  the  use  of  greenbacks  to  pay  debt  was  better  than  such 
interest.  Now,  by  this  act,  both  uses  were  added  to  the  de- 
mand note,  and  it  became  ivorth  as  much  as  coin.  It  staj'ed 
at  or  above  par  with  coin  from  that  time  till  this,  and  is  proof 
positive  that  the  "except"  did  depreciate  the  greenback.  It 
shows  further,  that  a  note,  like  bullion,  when  coiued  into 
money  ceases  to  be  valued  for  its  prospective  redemption.  It 
becomes  immediately  valuable  because  immediately  useful* 
Few  men  want  gold  as  bullion,  and  few  men  want  notes  as 
investments,  especially  without  interest.  Make  either,  how- 
ever, into  money,  and  it  becomes  universally  accepted, 
because  all  need  money  to  exchange  goods  and  to  pay  debts 
and  taxes. 

§  101.  Section  3  of  the  act  increased  the  temporary  de- 
posits to  $50,000,000.  These  certificates  were  convertible  on 
ten  days'  notice,  aud  served  the  purpose  of  money  in  clearing 
house  operations  and  other  like  business  between  banks.  If 
they  had  not  been  issued,  the  greenbacks  would  necessarily 
have  been  held  for  that  purpose.  As  it  was  they  were  so 
much  inflation.  They  enabled  the  banks  to  secure  a  currency 
among  themselves,  drawing  5  per  cent,  interest,  thereby  avoid- 
ing so  much  of  the  loan  represented  by  the  greenbacks. 
The  interest  on  these  certificates  was  practically  a  gift  to 
those  who  used  them.  It  was  bad  policy  for  the  Government 
to  borrow  money  on  call,  as  it  had  to  hold  a  reserve  to  meet 


128  AMERICAN  FINANCED. 

demauds  and  could  not  avail  itself  of  all  the  loan.  Holding 
one  third  would  make  the  interest  on  the  balance  7^  per 
cent. 

§  102.  The  act  of  July  11, 1862,  provided  in  the  first  section 
for  $150,000,000  more  of  greenbacks,  not  more  than  $35,000,- 
000  to  be  of  denominations  below  $5.  It  also  authorized  the 
Secretary  to  exchange  5-20  bonds  for  greenbacks  on  such 
terms  as  he  should  think  most  beneficial  to  the  public  interest. 

Section  3  increased  the  temporary  deposit  limit  to  $100,- 
000,000.  It  a]:o  stipulated  that  $50,000,000  of  the  notes 
authorized  by  the  act,  must  be  held  as  reserves  to  uieet  these 
deposits. 

This  made,  all  told,  $300,000,000;  $50,000,000,  however, 
were  to  be  held  as  reserves,  and  about  $50,000,000  of  the 
demand  notes  had  gone  to  par  with  gold,  and  henue  out  of 
circulation.  We  can  then  safely  deduct  $100,000,000,  to 
offset  which  we  should  add  all  that  the  banks  could  use  as 
reserves  in  the  way  of  certificates  of  deposit.  This  would  be 
about  $50,000,000,  leaving  at  least  $250,000,000  of  inflation  of 
greenbacks  in  1862.  The  banks  were  also  inflating  their  cur- 
rency. 

§  103.  Mr.  Lovejoy,  in  the  House,  announced  his  intention 
to  bring  in  a  bill  to  tax  the  bank  circulation  and  prevent  in- 
flation of  their  paper.  In  the  Senate,  John  Sherman  ofi'ered 
an  amendment  taxing  bank  circulation  2  per  cent.,  which 
was  defeated.  About  this  time  the  first  bill  providing  for 
taxation  to  carry  on  the  war  was  passed.  In  this  bill  was 
levied  stamp  taxes  upon  notes,  checks,  etc.  All  taxation  on 
bank  notes,  however,  was  carefully  avoided,  and  a  discrimina- 
tion was  made  in  favor  of  banks  of  issue  as  follows: 

"  Bankers  shall  pay  .$100  for  each  license." 

"  Every  person  shall  be  deemed  a  banker  within  the  meaning  of 
this  act,  who  keeps  a  place  of  business  wliere  credits  are  o])ened  in 
favor  of  any  person.  Arm,  or  corporation,  by  deposit  or  collection 
of  money  or  currency,  and  the  same  or  any  part  thereof  shall  be 
paid  out  or  remitted  upon  the  draft,  check,  or  order  of  such 
creditor.  But  not  to  include  incorporated  banks,  or  other  banks 
legally  authorized  to  issue  notes  as  circulation." 

It  would  seem  as  though  Congress  considered  it  essential 
that  this  peculiar  franchise  should  be  protected  and  fostered 


FINANCIAL  LEGISLATION  DURING  THE  WAR.     129 

in  every  possible  way.  It  was  no  part  of  the  capital  of  the 
bank,  it  was  but  a  privilege  granted  by  law,  and  one  of  great 
value;  no  less  than  that  of  making  paper  as  valuable  as 
money,  inasmuch  as  it  brought  them  the  same  revenue. 

The  soldier  might  suJffer  the  hardships  of  camp,  march, 
and  battle  a  month,  and  he  could  get  no  more  for  his  thir- 
teen dollars  than  the  banker  could  for  his  thirteen  promises. 
Yet  Congress,  although  taxing  everything  else  and  everybodj' 
else  to  carry  on  the  war,  carefully  avoided  taxing  any  of  the 
profit  derived  from  this  source.  Nor  was  this  all.  By  so 
doing,  the  banker  supplied  the  market  with  bank  notes  at  a 
time  when  the  Government  was  obliged  to  issue  currency. 
The  result  could  only  be  to  destroy  the  demand  for  the  Gov- 
ernment issues.  This  bill  clearly  authorized  the  Secretary 
to  sell  5-20  bonds  below  *'  market  value,"  if  he  deemed  it  for 
the  public  interest.  Yet  we  find  him  withholding  them,  and 
pushing  out  the  currency,  upon  pretense  that  he  could  find 
no  buyer  for  bonds.  In  the  meantime,  the  banks  continued 
to  unload  their  bonds. 

§  104.  The  act  of  July  17,  1862,  completes  the  financial 
legislation  of  the  session. 

The  first  section  authorizes  the  use  of  postage  and  other 
Government  stamps  as  currency.  This  was  in  consequence 
of  the  disappearance  from  circulation  of  the  small  coin. 

The  second  section  prohibits  the  issue  and  circulation  of 
fractional  notes  by  private  parties  or  corporations,  on  pen- 
alty of  fine  and  imprisonment.  If  Congress  can  prohibit 
private  or  corporate  currency  under  %1,  it  can  prohibit  pri- 
vate or  corporate  issues  over  $1;  and  if  it  was  proper  and 
expedient,  or  of  any  advantage  to  do  the  one,  it  was  just  as 
proper,  expedient,  and  advantageous  to  do  the  other.  Of  the 
motives  and  influences  which  led  to  the  course  thus  briefly 
described,  we  leave  the  reader  to  judge. 

§  105.  Secretary  Chase  submitted  his  annual  report  Decem- 
ber 4,  1862.  After  reviewing  the  financial  operations  of  the 
Government  since  the  commencement  of  the  war,  he 
remarked  that  the  adoption  of  the  legal  tender  currency  had 
operated  well,  and  that  the  currency  had  not  been  inflated. 
Coin  had  gone  out  of  use,  and  become  a  commodity,  and  the 

9 


130  AMERICAN  FINANCES. 

issues  of  paper  had  taken  its  place  as  a  currency  and  a  basis 
of  circulation  in  the  banks.  With  regard  to  the  banks,  he 
stated  that  they  were  diverting  the  greenback  from  its  proper 
use,  and  making  it  the  basis  of  their  notes.  Such  being  the 
case,  there  was  no  practical  limit  to  their  inflation.  He  uses 
these  words: 

"  Under  these  circumstances,  the  part  of  wisdom  and  duty 
seems  very  clear.  It  leads  to  the  support  of  the  United 
States  note  circulation,  and  the  reduction  of  the  bank  note 
circulation." 

He  had,  heretofore,  advised  a  tax  on  corporate  circula- 
toin,  and  now  "renewed  the  recommendation."  He  took 
occasion  to  again  urge  the  National  Banking  scheme, 
although  admitting  that  it  would  afford  little  direct  aid  in 
carrying  on  the  war.  He  complained  that  he  was  restricted 
to  market  price  in  the  sale  of  bonds.  He  recommended  a 
repeal  of  the  provision,  and  also  a  repeal  of  the  provision 
making  the  greenback  convertible  into  bonds. 

It  seems  a  little  curious  that  he  should  be  so  desirous  to 
push  the  National  Bank  scheme  when  it  would  do  no  particu- 
lar good. 

He  recommended  no  further  inflation  without  removing 
bank  paper.  He  again  argued  that  Congress  had  a  right  to 
control  the  paper  currency  of  the  country.  How  it  can  do 
so,  when  its  issue  depends  upon  the  will  of  a  corporation,  is 
difficult  of  comprehension. 

§  106.  Congress  assembled  December  2,  1863.  Early  in 
January  it  transpired  that  the  Treasury  was  empty,  and  that 
the  army  had  not  been  paid  for  some  time.  A  joint  resolu- 
tion was  passed  January  17,  1863,  authorizing  a  further  issue 
of  greenbacks  to  provide  for  the  "immediate  payment  of  the 
army  and  navy."  The  notes  so  issued  were  to  be  considered 
part  of  the  amount  provided  for  in  any  bill  then  pending,  or 
that  might  be  passed  thereafter  by  Congress.  On  January  5 
Mr.  Sherman  introduced  a  bill  in  the  Senate  providing  for  a 
tax  on  bank  circulation,  and  presenting  the  question  as  a  dis- 
tinct issue.  He  made  an  able  speech  in  its  favor.  No  reply 
was  made,  but  thp  bill  was  promptly  referred  to  committee 


FINANCIAL  LEGISLATION  DURING  THE  WAR.    131 

and  extinguished.     We  extract  the  following,  which  gives 
the  gist  of  his  argument: 

*  And,  sir,  the  system  of  a  local  bank  paper  destroj's  all  hope  of 
a  national  currency,  and  defeats  a  plain  provision  of  the  Constitu- 
tion, It  is  difficult  to  resist  the  conviction  that  notes  issued  by 
State  corporations  are  bills  of  credit  prohibited  by  the  Constitu- 
tion of  the  United  States. 

Mr.  Stevens,  on  December  8,  had  introduced  a  bill  which, 
like  Mr.  Sherman's,  was  designed  to  cure  some  of  the  evils  of 
the  legislation  of  the  previous  year,  and  it  shared  the  same 
fate.  It  seemed  evident  that  Congress  would  not  tax,  or  in 
any  other  manner  suppress  bank  inflation,  and  would  con- 
tinue to  issue  partially  repudiated  legal  tenders  and  make 
a  special  market  for  gold. 

§  107.  Mr.  Sherman  now  introduced  the  National  Bank 
bill.  After  a  lengthy  debate  it  passed  the  Senate  by  a  vote 
of  23  to  21.  In  the  meantime  there  had  been  several  bills 
for  the  same  purpose  introduced  and  referred  to  committee 
in  the  House.  When  the  Senate  bill  came  down  it  was  not 
referred,  as  usual,  but  brought  before  the  House  without 
consideration  in  committee  with  other  similar  bills.  It  was 
not  discussed  in  committee  of  the  whole,  but  under  a  motion 
to  refer,  which  cut  off  amendments,  the  friends  of  the  bill 
debated  its  general  merits.  When,  by  parliamentary  tactics, 
it  was  forced  to  a  final  vote,  it  passed  under  the  gag  rule  of 
the  previous  question  by  a  vote  of  78  to  64.  Precautions 
were  taken  to  prevent  either  a  call  of  the  House  or  a  motion 
to  adjourn.  The  reader  is  left  to  draw  his  own  inferences. 
The  leading  provisions  of  the  National  Bank  act  were  aptly 
described  by  Mr.  Collamer,  in  the  following  language^  when 
debating  the  bill: 

X  "To  induce  people  to  take  8300,000,000  of  stock  on  interest,  set  up 
these  banks,  put  out  their  circulation  as  a  national  currency,  and 
we  guarantee  its  payment.  Wherein  is  that  any  better  than  the 
paper  we  have  got  out  now  ?  I  will  ask  gentlemen  to  put  that 
question  to  themselves.  Is  it  any  better?  What  is  it  founded 
on?  United  States  credit!  United  States  stocks !  Whom  do  the 
bill  holders  look  to  for  fmal  redemption?  The  United  States 
Treasury.    We  say  we  will  redeem  them.    The  system  has  no 


*  P.  50  app.,  Globe,  3d  Session  37th  Congress. 
X  Globe,  aa  sess.,  37tli  Cong.,  p.  872. 


132  AMERICAN  FINANCES. 

other  foundation.  All  these  fictitious  contrivances  about  the 
responsibility  of  the  individual  stockholders  amount  to  just  noth- 
ing at  all.  As  to  the  provision  retaining  25  per  cent,  of  their  cir- 
■culation,  they  can  put  tliat  in  their  own  pockets  whenever  they 
please,  and  there  is  nobody  to  question  them  about  it.  It  is  simply 
iind  singly  founded  upon  the  public  responsibility.  And,  indeed, 
the  honorable  Senator  from  Ohio  deems  that  to  be  its  great  feat- 
ure of  excellence.  *  *  *  Instead  of  circulating  that  amount  of 
our  own  currency  upon  our  own  responsibility  and  paying  noth- 
ing, we  are  to  hire  them  to  circulate  that  amount  of  our  currency 
and  pay  them  $12,000,000  a  year  in  gold  for  doing  it.  Yankee  as  I 
am,  I  am  unable  to  perceive  how  it  is  possible  that  that  can  be  a 
good  trade  for  us,  or  how  any  shrewd  man  would  think  of  enter- 
ing into  an  agreement  of  that  kind." 

The  old  State  bank  systevu  conferred  the  power,  as  we 
have  seen,  to  draw  interest  upon  its  debts,  to  change  the 
value  of  money,  and,  by  bankruptcy  and  suspension,  to  avoid 
ultimate  payment.  The  only  evil  cured  in  any  sense  by  the 
new  scheme,  was  the  insecurity  of  the  notes.  The  Grovern- 
ment  was  pledged  for  their  ultimate  redemption  and  under- 
took to  furnish  the  money  to  redeem  them  with,  if  the  banks 
did  not,  and  collect  from  the  banks.  The  thing  pledged  as 
security  was  not  coin,  however,  but  the  Government  prom- 
ises, with  a  margin  of  10  per  cent.  In  time  of  general  panic 
the  banks  can  lock  up  their  coin,  divide  their  plunder  among 
the  stockholders,  and  go  into  bankruptcy.  This  will  throw 
large  amounts  of  Government  bonds  upon  the  market  at  a 
time  when  credit  is  shaken,  and  the  result  will  be  that  the 
bonds  cannot  be  sold  for  coin  to  redeem  the  notes  with,  or  any- 
thing like  it.  Individuals  who  may  chance  to  have  coin  can 
buy  these  bonds  at  their  OAvn  price,  and,  when  confidence  is 
restored,  start  National  Banks  again.  This  banking  privi- 
lege was  retroactive,  and  was  an  added  consideration  on  all 
bonds  already  sold.  If  designed  to  make  a  market  for  bonds, 
as  pretended,  it  should  have  been  limited  to  future  issues. 

To  show  the  attitude  of  the  banks  at  that  time,  we  select 
the  following  from  a  letter  dated  March  7,  1S62,  addressed  to 
Hon.  David  Wilmot,  by  James  Gallatin,  of  New  York,  then 
President  of  the  Chamber  of  Commerce.  After  criticising 
the  French  assignat  and  land  basis  schemes,  he  wrote  in  these 
words : 

"Now  if  tlie  i)ublio  funds  are  a  proper  basis  for  $1,000  of  paper 


FINANCIAL  LEGISLATION  DURING  THE  WAR.    133 

currency,  they  must,  of  necessity,  be  good  for  any  amount.  If  one 
bank  or  banker  is  allowed  to  issue  paper  on  the  security  of  stock, 
every  other  must  be  allowed  to  do  the  same,  until  th.e  whole  debt 
of  the  United  States  is  coined  into  paper  money.  The  principle  of 
basing  paper  currency  upon  lauds,  upon  taxes,  upon  public  funds, 
ai'e  one  and  all  the  same  and  equally  dangerous.  To  permit  a  man 
to  spend  his  money  in  purchasing  public  stocks,  and  still  to  have 
it  in  the  form  of  notes,  is  an  absurdity." 

It  was  no  absuvditj^,  however,  in  his  estimation,  that  a  man 
should  have  his  money  all  in  his  safe  and  yet  lend  it  to  half 
a  dozen  men  at  the  same  time.  The  proposed  arrangement 
would  enable  him  to  lend  but  twice,  once  to  the  Government 
and  once  to  the  business  man.  That  was  the  trouble  with 
Mr.  Gallatin. 

The  Government  to  give  currency  to  these  National  Bank 
notes  makes  them  partially  money  by  receiving  them  for  all 
dues  to  the  Government,  except  duties  on  imports,  and  pay- 
ing them  to  its  creditors  for  all  dues  f]-om  the  Government 
except  interest  on  the  public  debt.  They  are  practically  a 
legal  tender.  How  much  this  is  short  of  allowing  corpora- 
tions to  coin  money,  it  is  difficult  to  discover.  It  is,  perhaps, 
lawful  and  right  that  the  Government  should  receive  what- 
ever it  pleases  in  collecting  its  revenues.  But  unjust  dis- 
crimination should  not  exist  between  citizens  in  a  republic, 
and  if  the  note  of  one  man  is  received,  those  of  another 
equally  responsible  should  be  taken,  otherwise  it  is  class 
legislation.  But  when  it  comes  to  paying  public  creditors 
with  private  notes,  it  is  clearly  an  injustice. 

'' Congress  shall  have  power  to  coin  money  and  regulate 
its  value,"  says  the  Constitution,  and  it  cannot  either  Avholly 
or  partially  delegate  this  power  to  corporations  without  dele- 
gating one  of  its  most  important  functions.  If  it  can  delegate 
the  power  to  coin  money,  or  the  power  to  regulate  its  value 
to  banks,  it  can  delegate  the  power  to  make  laws  to  lawyers. 
If  it  ought  to  do  one,  it  ought  to  do  the  other.  If  bankers 
know  best  -what  the  people  need  in  the  way  of  money,  then 
lawyers  knoAv  best  what  they  need  for  laws,  and  we  should 
incorporate  the  lawyers  for  that  purpose  and  abolish  Congress. 

The  provision  for  taxing  the  banks  one  per  cent,  on  their 
circulation,  was  not  designed  for  revenue,  and  yields  none. 


134  AMERICAN  FINANCES. 

It  simply  covers  the  expense  on  the  part  of  the  Government 
of  printing,  issuing,  and  looking  after  the  notes. 

There  is  a  rule  of  the  House  that  no  bill  levying  a  tax 
upon  the  people,  shall  be  passed  without  consideration  in 
committee  of  the  whole.  If  this  be  a  tax,  then  the  bill  was 
passed  in  violation  of  that  rule.  Objection  was  made  to  its 
passage  without  such  consideration,  a)id  the  Sjjeaker  ruled 
out  the  objection,  on  the  ground  that  the  one  per  cent,  was 
no  tax,  but  was  merely  intended  to  cover  the  expense  of 
issuing  the  notes. 

§108.  The  act  of  March  3,  1863,  known  as  the  "Ways 
and  Means  bill,"  passed  the  House  on  the  same  day  that  the 
National  Bank  bill  was  introduced  in  the  Senate.  The 
Senate  acted  on  the  bank  bill  first  in  every  instance,  and 
then  followed  with  this,  amending  it  in  deference  to  the  bank 
act  as  will  be  noticed. 

The  first  section  of  the  "Ways  and  Means  bill"  provided 
for  a  loan  of  $900,000,000— $300,000,000  for  the  cur- 
rent year  and  $600,000,000  for  the  following  year.  The 
bonds  issued  under  this  act  were  to  run  ten  to  forty  years, 
and  were  to  be  paid  in  coin,  both  principal  and  interest. 

Section  2  authorized  $400,000,000  of  notes,  bearing  interest 
not  to  exceed  the  rate  of  6  per  cent,  to  run  not  more  than 
three  years,  and  might  he  made  legal  tender  at  their  face 
value,  exclusive  of  interest.  It  was  provided  that  the  interest 
on  said  notes  and  certificates  of  indebtedness  and  deposit 
thereafter  issued  should  be  paid  in  lawful  monej^;  and  that 
$150,000,000  of  greenbacks  might  be  issued  to  exchange  for 
these  notes,  and  for  no  other  purpose.  The  provision  to  make 
these  notes  a  legal  tender  was  inserted  by  the  Senate,  and  the 
option  left  witli  the  Secretary  to  coin  $400,000,000  of  money 
or  not,  as  he  might  see  fit.  The  bank  bill  provided  that  the 
banks  shouhl  hold  a  reserve  of  laAvful  money  of  25  per  cent. 
of  circulation.  Making  these  notes  a  legal  tender  would 
enable  the  banks  to  hold  interest-bearing  money  as  such 
reserves,  while  other  people  were  loaning  to  the  Government 
without  interest.  Under  "this  section,  the  Secretary  issued 
notes  known  as  the  one,  and  two-year,  and  coupon  notes, 
drawing  5  per  cent.,  and  the  6  per  cent,  three-year  compound 


FINANCIAL  LEGISLATION  DURING  THE  WAR.    135 

interest  notes.     These  latter,  two  years  later,  were  held  as 
reserves  by  the  bankers  to  the  amount  of  $S0.000,000. 

Section  3  provided  for  $15(>,000,000  more  of  greenbacks, 
and  repealed  the  provision  for  their  convertibility  into  bonds 
after  July  1,  1863.  It  also  repealed  all  previous  laws  restrict- 
ing the  sale  of  bonds  to  market  price. 

Thus  11550,000,000  of  legal  tenders  could  be  issued  in 
addition  to  the  |i300,000.00olilreadv  authorized;  $100,000,000 
with  interest  and  an  additional  $150,000,000  without  interest, 
and  $50,000,000  to  be  temporary  according  to  emergency. 

Although  authorized  by  the  act  of  July  11,  1862,  to  sell 
bonds  for  greenbacks,  as  he  should  think  most  beneficial  for 
the  public  interest,  the  Secretary  had  up  to  this  time  made 
no  special  effort  to  sell  bonds,  but  had  inflated  the  currency 
and  enabled  the  banks  to  unload.  Now,  with  the  Bank  Act 
passed,  it  was  time  to  depreciate  the  bonds  by  flooding  the 
market,  so  that  the  banks  could  load  up  for  banking  purposes 
under  the  new  law.  Repealing  convertibility  would  cut  the 
greenbacks  loose  from  coin  entirely,  and  have  a  tendency  to 
establish  them  as  a  permanent  currency. 

Section  4  authorized  $50,000,000  of  fractional  currency  in 
lieu  of  postage  and  revenue  stamps,  exchangable  for  green- 
backs, receivable  for  all  Government  dues  except  imposts, 
and  redeemable  at  the  Treasury  in  currency. 

Section  5  provided  for  coin  certificates.  The  Secretary 
might  receive  coin  on  deposit  in  sums  of  $20  and  multiples 
thereof,  and  issue  certificates  therefor.  The  certificates  were 
redeemable  on  demand,  and  coin  must  be  held  for  the  re- 
demption of  such  paper.  These  certificates  were  to  be 
received  at  par  for  imposts,  and  such  certificates  might  be 
issued  in  payment  of  interest  on  the  public  debt.  The  whole 
amount  of  certificates  could  not  be  more  than  20  per  cent,  in 
excess  of  the  coin  and  bullion  in  the  Treasury.  This  was  a 
process  of  making  paper  gold  to  the  extent  of  120  per  cent. 
on  the  principle  explained  in  the  wheat  transaction. 

From  this  time  on  there  came  to  be  practiced  a  false  pre- 
tense with  regard  to  the  amount  of  coin  in  the  Treasury  and 
banks.  The  banks  report  coin  and  coin  certificates  indis- 
criminately, and  the  coin  deposited  is  counted  twice,  once  in 


136  AMERICAN  FINANCES. 

the  Treasury  and  again  as  certificates  in  the  bank.  If  there 
was  in  the  Treasury  $100,000,000  of  coin,  the  Secretary  could 
issue  $120,000,000  certificates,  and  the  reports  would  show 
apparently  $220,000,000  of  coin. 

Checks  on  banks  which  called  for  coin  were  also  thus 
counted.  For  example,  June  10,  1872,  the  report  was  a  fol- 
lows: Coin  in  National  Banks  of  New  York  city,  $19,111,1:90. 
The  items  were  as  follows: 

Coin  in  New  York  Banks    $  3,782,910 

Certificates 11,412,160 

Checks 4,219,420 

^19,414,490 
Actual  coin 3,782,910 

Paper $15,631,580 

In  January  20,  1877,  the  coin  reported  was  $35,298,945,  of 
which  only  $1,669^285  was  actual  coin,  the  rest  being  paper 
coin. 

This  is  the  way  the  coin  is  reported  to-day,  and  is  but  the 
twin  of  the  other  Treasury  report  fraud  introduced,  by  Hugh 
McCulloch,  of  deducting  cash  on  hand  from  the  public  debt, 
though  every  dollar  of  it  was  represented  by  a  bond  drawing 
interest.     On  that  plan,  funding  the  debt  would  pay  it. 

If  a  man  out  of  debt  should  borrow  $1,000,  and  put  the 
money  in  his  pocket  and  keep  it  there,  he  would  be  out  of 
debt  all  the  time,  and  would  be  in  debt  only  if  he  used  the 
money,  thus  deriving  some  benefit  from  its  use.  Is  this 
reasonable  ? 

Section  7  provided  for  a  tax  on  State  bank  circulation  of 
1  per  cent,  for  two  years  and  2  per  cent,  thereafter,  and  a 
gradually  increasing  tax  on  all  amounts  in  excess  of  capital 
stock.  Although  the  Senate  had  a  few  days  before  refused 
to  entertain  a  bill  to  tax  bank  circulation,  they  w^ere  now 
willing  not  only  to  tax,  but  to  increase  the  amount  levied  on 
State  banks  by  the  House  bill.  The  tax  was  in  no  sense  pro- 
hibitory, however. 

The  whole  financial  legislation  taken  together  up  to  this 
time  had  provided  almost  unlimited  possibilities  of  inflation. 


FINANCIAL  LEGISLATION  DURING  THE  WAR-     1:^.7 


Should  the  State  banks  add  nothing  to  the  circukition,  the 
following  is  a  correct  statement  of  the  possible  inflation  : 

Originally  authorized,  without  interest $30  ),000,000 

Additional  authorized,  without  interest 150,000,000 

Additional  authorized,  with  interest 400,000,000 

Fractional  currency 50,000,000 

Total  Government  currency .^000,000,000 

I^atioiial  Bank  currency 300,000,000 

State  Bank  currency,  unlimited:  now  outstanding- 227,')00,000 

$1,427,600,000 
Bonds  bearing  coin  interest  being  offered  for  currency  at 
par  was  equivalent  to  selling  bonds  at  a  discount  equal  to  the 
depreciation  of  the  paper  below  coin,  Avhich  was  soon  50  per 
cent.  The  banks  had  unloaded  their  bonds,  the  National 
Bank  act  had  been  passed,  and  two  bills  authorizing  the 
Secretary  to  sell  bonds  at  his  discretion  below  the  market 
price.  The  Secretary  was  also  empowered  to  inflate  and 
depreciate  the  currency  at  will.  The  State  banks  were  issuing 
currency  upon  the  greenbacks,  and  National  Banks  were 
chartered  to  issue  their  notes  upon  bonds  to  the  extent  of 
$300,000,000. 

§  109.  This  was  the  peculiar  situation  when  Secretary 
Chase  commenced  selling  the  5-20  bonds.  He  engaged  Jay 
Cooke  &  Co.  to  aid  in  selling  them,  and,  for  the  first  time,  they 
were  placed  really  within  the  reach  of  the  people.  The  result 
was  the  prompt  sale  of  several  millions  in  excess  of  the  amount 
authorized.  In  consequence  of  inflation  and  this  extensive 
sale,  the  banks  were  enabled  to  load  up  with  bonds  at  a  dis- 
count. 

They  could  thus  convert  their  coin  at  a  great  advantage  to 
themselves,  much  of  the  time  receiving  for  every  coin  dollar 
two  of  bonds,  and  even  for  two  months  two  and  a  half.  In  1864, 
the  National  Bank  law  was  revised  and  re-enacted,  and  the 
transfer  from  State  to  National  banking  set  in  r;ipidly.  During 
the  year  the  currency  was  increased  one-third  (from  ten  to 
fifteen  dollars  per  capita)  and  prices  rapidly  advanced. 

Congress  assembled  Decer.iber  T,  1863.  Secretary  Chase 
recommended  increased  taxation  of  bank  circulation,  and 
thought  much  of  the  greater  part  of  the  inflation  was  due 


138  AMERICAN  FINANCES. 

to  such  currency.  He  was  gratified  with  the  success  of  the 
Government  notes  as  a  currency,  but  thought  it  inexpedient 
to  issue  more  of  them.  He  reported  that  he  had  issued  all 
the  notes  authorized,  and  had  made  the  ^100,000,000  of 
interest-bearing  notes  a  legal  tender  as  authorized  by  the  act 
of  March  3,  1863. 

§  110.  The  act  of  March  3,  1864,  was  the  first  financial 
law  of  the  session. 

Section  1  provided  that  the  Secretary  might  make  $200,- 
000.000  of  the  10-10  bonds  payable  in  five  and  due  in  twenty 
years.  Under  this  section  the  5-20's  of  1864  were  issued. 
These  are  the  only  5-20  bonds  which  were  made  payable  in 
coin  by  the  act  authorizing  their  issue. 

Section  2  of  the  act  authorized  the  Secretary  to  issue  $11,- 
000,000  of  the  5-20's  of  1862,  to  supply  the  subscriptions  in 
excess  of  the  loan. 

§  111.  The  next  law  was  the  joint  resolution  of  March 
17,  1865,  authorizing  the  Secretary  of  the  Treasury  to  sell 
any  gold  in  the  Treasury  in  excess  of  the  sinking  fund  and 
interest  on  the  bonds,  and  he  could  anticipate  the  payment 
of  coin  interest  not  to  exceed  one  year. 

The  duties  on  imports  at  that  time  were  about  §80,000,000 
and  the  interest  only  about  $40,000,000.  The  result  was  a 
hoarding  of  coin  in  the  Treasury.  This  made  the  Govern- 
ment the  greatest  "bull"  in  the  gold  market.  The  Secretary 
had  already  been  empowered  to  buy  gold  at  his  discretion;  he 
was  now  empowered  to  sell,  so  that  he  cotild  use  the  whole 
financial  strength  of  tiie  Government  to  operate  the  gold 
market. 

§  112.  The  proviso  Avith  regard  to  the  sinking  fund  gave 
rise  to  some  debate.  It  was  at  this  time  that  the  question  of 
<join  payment  of  the  5-20  bonds  was  first  raised.  Some 
claimed  that  they  were  payable  in  coin  at  par.  Others,  among 
whom  were  Mr.  Stevens  and  Mr.  Kelly,  denied  this.  The 
question  was  put  to  the  Secretary  of  the  Treasury  by  a  cor- 
respondent, and  he  replied: 

*  "Treasury  Department,  May  18,  1S04. 
Sir:    Your  letter  of  the  13th  inst.,  making  inquiries  with  re- 

*  Globe  1st  sess..  38th  Cong.,  p.  3187. 


FINANCIAL  LEGISLATION  DURING  THE  WAR.    139 

gard  to  the  kind  of  currency  with  which  5-20-year  6  per  cent, 
and  the  three-year  7.30  per  cent,  notes  are  to  be  redeemed,  has 
been  received.  It  has  been  the  constant  usage  of  the  Depart- 
ment to  redeem  all  coupon  and  registered  bonds  forming  a  part  of 
the  permanent  or  funded  debt  of  the  United  States  in  coin,  and 
the  usage  has  not  been  deviated  from  during  my  administration 
of  its  affairs. 

All  the  Treasury  notes  and  other  obligations  forming  part  of  the 
temporary  loan,  are  payable  and  will  be  redeemed  in  lawful  money ; 
that  is  to  say,  in  United  States  notes  or  I<[ational  currency,  until 
after  the  resumption  of  specie  payments,  when  they  also  w  ill  doubt- 
less be  redeemed  in  coin  or  equivalent  notes.  The  5-20  sixes  being 
payable  twenty  years  from  date,  though  redeemable  after  five  yeai'S, 
are  considered  as  belonging  to  the  permanent  or  funded  debt,  and 
also  the  20-year  sixes  into  which  the  three  year  7.30  notes  are  con- 
vertible. These  bonds,  therefore,  according  to  the  usage  of  the 
Government,  are  payable  in  coin.  The  three  year  7.30  Treasury 
notes  are  part  of  the  temporary  loan  and  will  be  paid  in  United 
States  notes  or  National  currency,  unless  holders  prefer  conversion 
to  payment.  Very  Eesp\y, 

S.  P.  CHASE,  Secretary  of  Treasury." 

Mr.  Chase  was  thoroughly  competent  to  render  a  valuable 
legal  opinion  ou  this  point.  He  should  have  done  so,  as  by  that 
course  he  might  have  averted  much  of  the  uncertainty  that 
subsequently  proved  so  mischievous.  He  systematically, 
however,  avoided  giving  a  legal  opinion,  but  stated  that 
coupon  or  registered  bonds  had  been  paid  in  coin,  and,  there- 
fore, he  supposed  they  should  be  paid  in  coin. 

Authorized  to  sell  5-20  bonds  at  his  discretion,  he  was  so 
rigorous  in  his  construction  of  the  law  that  he  refused  to  sell 
them  at  less  than  their  market  value  until  specially  author- 
ized to  do  so.  But  when  called  upon  to  interpret  the  legal 
tender  law  that  greenbacks  should  be  a  legal  tender  for  all 
debts  public  and  private.!  except  duties  on  imports  and  interest 
on  the  public  debt.,  he  inclined  to  the  opinion  that  custom  (not 
law)  decided  that  Congress  meant  that  greenbacks  should  be 
a  legal  tender  for  all  debts  public  and  private,  except  duties 
on  imports,  and  principal  and  interest  on  the  public  debt. 
Verily,  a  great  lawyer  hath  descended  to  the  tricks  of  a  petti- 
fogger. 

§  113.  The  next  law  was  the  act  of  June  30,  1864.  The 
first  section  authorizes  a  loan  of  $400,000,000,  for  which  the 


140  AMERICAN  FINANCEH. 

Secretaiy  might  issue  bonds  payable  in  not  less  than  five  nor 
more  than  thirty,  or  if  expedient,  forty  years,  with  interest 
at  6  per  cent,  in  coin.  He  might  sell  the  same  in  Europe,  if 
expedient.  It  will  be  observed  that  this  a.ct  specifies  the 
kind  of  interest  to  be  paid.  In  view  of  the  recent  differences 
of  opinion,  Mr.  Brooks  moved  to  insert  the  words  "^  in  coin  " 
after  the  words  describing  the  bonds.  Mr.  Hooper  did  not 
consider  it  necessary  or  expedient  to  do  so,  and  the  amend- 
ment was  lost.  Mr.  Stevens  offered  a  substitute  making  the 
payment  of  the  interest  in  currency,  and  the  principal  of  the 
bonds  in  coin.  This  was  sensible,  for  then  was  the  time  they 
needed  to  use  paper,  if  ever,  and  in  the  future  only  could 
they  depend  upon  coin. 

Why  it  could  be  expedient  to  leave  the  matter  in  doubt 
can  be  easily  understood.  It  would  depreciate  the  value  of 
the  bonds.  With  the  law  and  the  equity  of  the  case  plainly 
in  favor  of  greenback  payment,  capitalists  would  invest  with 
the  expectation  of  being  paid  in  paper.  Keeping  it  an  open 
question,  moreover,  would  furnish  a  pretext  for  the  credit- 
strengthening  act.  By  the  finance  report  of  1873,  it  appears 
that  the  bonds  which  were  issued,  according  to  acts  contain- 
ing the  words  "in  coin,'^  sold  for  a  premium,  though  nearly 
all  of  them  drew  but  5  per  cent,  interest,  while  those  issued 
without  this  clause  in  the  law  authorizing  them  sold  at  par, 
while  drawing  6  per  cent. — the  int^i'est  on  both  being  payable 
in  coin.  The  second  section  provides  that  $200,000,000  of 
this  loan  might  be  7.30  notes,  to  run  three  years,  and  might 
be  made  a  legal  tender,  but  not  in  redemption  of  bank  notes. 
The  Secretary  did  not  make  them  a  legal  tender,  however, 
perhaps  because^,  if  made  so,  they  would  be  useless  to  the 
banks  as  interest-bearing  reserves. 

This  section  also  contained  this  provision:  "Nor  shall  the 
total  amount  of  United  States  notes  issued  or  to  be  issued 
ever  exceed  $400,000,000,  and  such  additional  sum,  not  ex- 
ceeding $50,000,000,  as  may  be  required  for  the  redemption 
of  temporary  loans." 

Tills  was  nonsense  pure  and  simple.  It  was  attempting  to 
legislate  for  the  future,  and  declare  that  a  future  (congress 
should  not  do  what  the  present  Congress  had  a  right  to  do. 


FINANCIAL  LEGISLATION  DURING  THE  WAR.     141 

It  was  but  buncombe  legislation,  without  force  or  effect,  ex- 
cept to  afford  an  argument  about  "  pledge  of  faitli  to  public 
creditors." 

The  Constitution  is  the  only  law  that  Congress  is  bound  to 
obey,  and  if,  in  the  exercise  of  its  functions  of  borrowing, 
coining,  or  regulating  the  value  of  money,  it  becomes  neces- 
sary and  proper  to  issue  more,  it  can  and  ought  to  do  so. 
Such  a  clause  would  not  amount  to  a  straw,  except  to  aid 
designing  knaves  in  deceiving  the  ignorant.  Congress  can 
make  no  law  that  it  cannot  repeal  whenever  it  sees  fit, 
and  it  is  in  duty  bound  to  repeal  any  law,  if  it  becomes 
necessary  and  proper  to  do  so,  in  order  to  accomplish  the 
objects  for  which  the  Government  was  formed. 

Section  3  made  a  present  of  semi-annual  payment  of  inter- 
est to  all  holders  of  bonds  heretofore  drawing  annual  pay- 
ments. It  also  repealed  the  law  authorizing  the  bonds  of 
1863,  except  the  $75,000,000  already  advertised.  If  they 
really  meant  to  pay  all  the  bonds  in  coin,  why  should  thej' 
stop  the  issue  of  bonds  which,  by  virtue  of  the  certainty  of 
such  payment,  were  drawing  but  5  per  cent,  interest. 

Section  4  authorized  the  Secretary-  to  receive  National 
Bank  notes  as  temporary  deposits,  and  raise  the  interest  on 
such  deposits  to  6  per  cent,  at  his  option.  It  raised  the  limit 
of  such  deposit  to  1150,000,000,  the  Secretary  being  author- 
ized to  hold  a  reserve  of  $50,000,000  for  their  redemption. 
Under  this  arrangement  a  bank  could  deposit  bonds  bought 
with  paper  costing  less  than  fifty  cents  in  coin  to  the  dollar, 
and  draw  coin  interest  on  such  bonds  at  6  per  cent.,  which 
would  be  over  12  per  cent,  on  the  actual  investment  of  coin. 
It  could  then  deposit  the  currency  received  and  draw  six 
more  on  that,  being  an  additional  5  4-10  per  cent,  on  the 
original  investment,  making  over  17  4-10  per  cent,  in  all.  for 
which  the  Government  would  inflate  the  currency  with  bank 
notes  instead  of  its  own.  This  was  over  11  4-10  per  cent,  for 
absolutely  nothing  except  to  persuade  somebody  to  organize 
national  banks. 

Section  13  defines  the  words  "  obligation  or  other  security 
of  the  United  States  "  to  include  and  mean  National  Bank 
notes.     Bank  notes  are  not  obligations  of  the  United  States, 


142  AMERICAN  FINANCES. 

but  are  obligations  of  private  corporations  wliicli  have  re- 
ceived United  States  indorsement.  Tlie  United  States  gains 
nothing  from  these  notes,  and  there  is,  therefore,  no  reason 
why  they  should  not  be  taxed;  private  property  should  not 
be  exempted  from  taxation  because,  forsooth, the  Government 
gives  it  indorsement. 

§  114.  During  this  session  the  National  Bank  act  was  re- 
vised and  re-enacted.  A  bill  for  this  purpose  was  introduced 
in  the  House.  It  was  debated,  amended,  and  finally  defeated. 
Another  was  sent  from  the  Senate,  and  gagged  through  like 
the  original  the  year  before.  Thus  it  will  be  seen  that  the 
only  bank  bill  on  which  the  House  had  a  fair  debate  was  de- 
feated, and  the  others  were  both  put  through  by  parliamen- 
tary tactics  without  a  fair  discussion.  In  debate,  Mr.  Brooks, 
of  New  York,  showed  that  the  pet  banks,  which  the  Secre- 
tary had  made  national  depositories,  were  putting  the  Gov- 
ernment funds  in  their  hands  into  deposits  Avith  the  Secre- 
tary and  drawing  interest  on  them. 

By  this  arrangement,  if  the  inducement  of  over  17  4-10 
per  cent,  was  not  enough,  the  Secretary  could  leave  on  de- 
posit any  amount  of  Government  funds  and  pay  them  interest 
on  the  same.  This  could  be  accomplished  by  the  bank  de- 
positing the  Government  funds  with  the  Se'.iretary,  and  tak- 
ing therefor  a  certificate  of  deposit.  The  Treasury  would 
then  hold  a  claim  against  the  bank  which  drew  no  interest, 
while  the  bank  would  hold  a  claim  against  the  Government 
drawing  6  per  cent.,  and  the  Government  had  but  received  its 
own  money.  The  bank  was  perfectly  safe  in  this  operation, 
for  when  the  Secretary  wished  to  use  the  funds  he  would 
draw  on  the  bank,  and  the  bank  would  respond  by  check- 
ing on  him.  As  he  already  had  the  money,  that  would 
end  it.  The  Secretary  need  not  even  take  this  trouble, 
for  the  funds  were  subject  to  disbursement  without  drawing 
on  the  bank  with  which  they  were  supposed  to  be  deposited. 
Thus  there  was  no  limit  to  this  game,  except  tjie  statutory 
limit  of  $150,000,000  to  the  certificates  of  deposits.  This  is 
1  he  way  the  tax-payers  were  paying  the  banks  6  per  cent,  for 
tweedle-dee,  while  the  banks  paid  nothing  for  tvveedle-dum. 
A  fine  thing  surely!     During  this  year  we  find  by  the  dia- 


FINANCIAL  LEGISLATION  DURING  THE  WAR.     143 

gram  that  prices  reached  their  highest  point.  The  currency 
was  inflated  to  about  $850,000,000.  We  exported  over  §100,- 
000,000  of  bullion,  decreasing  our  stock  $35,000,000.  We 
imported  more  merchandise  than  we  paid  f'or^  for  the  first 
time,  during  the  war  to  the  amount  of  $64,729,000.  This  out- 
flow of  coin  and  import  of  gold  occurred  when  coin  prices 
were  low. 

§  115.  Wm.  Pitt  Fessenden  succeeded  Mr.  Chase  as  Secre- 
tary of  the  Treasury.  He  suljmitted  his  annual  report  in 
December,  1864.  He  thought  the  omission  of  the  provision 
for  coin  payment  of  the  5-20  bonds  was  accidental,  and  rec- 
ommended legislation  to  settle  that  rjuestion. 

As  Mr.  Brooks  and  Mr.  Stevens  had  both  offered  amend- 
ments for  that  purpose,  which  had  been  rejected  after 
debate,  it  seems  curious  that  Mr.  Fessenden  should  think  it 
accidental.  He  thought  that  embarrassed  as  the  country 
was  with  two  systems  of  banking,  and  obstructed  as  the 
Government  was  by  a  currency  wholly  beyond  its  contrcd,  it 
would  not  be  advisable  to  push  its  own  issues  further.  He 
considered  the  violent  fluctuations  of  gold  due  to  gold  gamb- 
lers, or,  perhaps,  secret  enemies,  and  thought  that  the  rapid 
conversion  of  State  into  National  banks  was  on  account  of 
its  "  superior  advantages  rather  to  those  individuals  interested 
than  to  the  community  at  large."  He  thought  it  worth 
while,  however,  to  retain  the  National  Banks,  because  it 
secured  a  uniform  currency — as  though  the  greenback  wiis 
not  as  uniform  and  secure.  Such  shallow  excuses  show  the 
absurdity  of  the  position  of  Congress.  It  was  evidently 
legislating  for  the  banks  rather  than  the  people. 

§116.  The  act  of  January  28,  1865,  v/as  a  supplement  to 
the  acts  of  the  preceding  year,  and  authoi'ized  no  new  loan. 
The  first  section  provided  that  the  issue  of  the  remaining 
$200,000,000  of  the  loan  of  June  30, 1864,  might  be  issued  in 
7.30  notes  instead  of  bonds.  The  second  section  provided  for 
the  sale  of  $4,000,000  more  of  the  5-20  bonds  of  1862,  either 
in  this  country  or  in  Europe. 


144  AMERICAN  FINANCES. 

CHAPTER  XIII. 

FINANCIAL   LEGISLATION   SINCE   THE   WAR, 

§  117.  The  act  of  November  3,  1865,  was  passed  at  a  time 
when  it  was  evident  that  the  rebellion  was  about  to  collapse, 
and  partially  anticipated  that  event. 

This  act,  together  with  that  of  April  12,  1866,  constitute 
the  first  funding  scheme,  and  contained  provisions  giving 
almost  unlimited  power  to  the  Secretary  of  the  Treasury. 
The  first  section  authorized  a  further  loan  of  $600,000,000, 
for  which  he  might  issue  bonds  or  notes.  The  bonds  were  to 
run  not  less  than  five  nor  more  than  forty  years.  The  notes 
might  be  made  convertible  into  the  bonds,  and  might  be 
dated  and  run  such  time  as  the  Secretary  might  deem  expedi- 
ent, and  the  principal  or  interest,  or  both,  might  he  made  pay- 
ahle  in  coin  or  other  laivful  money,  at  the  option  of  the  Secre- 
tary. 

A  proviso  limited  the  interest  to  6  per  cent.,  if  paid  in 
coin,  and  7.30  if  not,  and  stipulated  that  the  rate  and  charac- 
ter of  the  interest  should  be  expressed  on  all  such  bonds  or 
Treasury  notes. 

Another  proviso  changed  the  act  of  June  30,  1864,  so  that 
the  balance  of  the  loan  could  be  in  bonds,  authorized  by  this 
act.  Another  proviso  allowed  the  Secretary,  cU  his  option 
and  consent  of  the  holder,  to  receive  in  exchange  any  obliga- 
tion of  the  Government  bearing  interest,  for  any  kind  of 
bond  authorized  by  this  act,  and  such  bonds  should  count  as 
no  part  of  the  $600,000,000  additional  loan. 

The  second  section  provided  that  he  might  dispose  of  any 
of  the  bonds  issued  under  this  act  anywhere,  and  for  either 
money  or  any  of  the  interest-bearing  obligations  of  the 
United  States,  either  past  or  future, "  in  such  manner,  and 
at  Bitch  rates,  and  under  such  conditions  as  he  might  think  ad- 
visable." In  section  3,  he  was  prohibited  from  making  any 
of  these  issues  a  legal  tender. 

Thus  it  will  be  seeii  that,  with  the  exception  of  the  maxi- 
mum 'rate  of  interest,  and  the  maximum  of  fortj'  and  mini- 
mum of  five  years  on   the  bonds,  the  Secretary  could  make 


FINANCIAL  LEGISLATION  SINCE  THE  WAR.      145 

any  contract  he  pleased  with  the  public  creditors,  and  he 
could  convert  the  whole  debt  bearing  interest  into  such  con- 
tract with  the  consent  of  the  holder,  at  his  option.  The 
power  thus  granted  to  Hugh  McCulloch  was  simply  despotic, 
and  the  scheme  can  best  be  understood  from  the  tables  show- 
ing what  he  actually  did.  One  peculiar  provision  will  be 
noticed:  the  nature  of  the  interest  must  be  specified,  while 
no  such  provision  was  made  with  regard  to  the  principal. 

Mr.  Hooper,  Chairman  of  the  Ways  and  Means  Committee, 
stated  that  the  bill  originated  in  the  Treasury  Department, 
and  that  the  committee  and  said  departm:!nt  had  held  fre- 
quent consultations  over  it,  and  that  the  bill  would  not 
necessarily  result  in  the  issue  of  gold  bonds,  but  would  give 
the  Secretary  an  important  influence  over  the  money  market.* 

Under  this  law  the  Secretary  could  issue  unlimited  quanti- 
ties of  7.30  notes.  The  debates  on  this  bill  show  that  such 
notes  were  in  actual  circulation. 

It  is  easily  seen  that  when  the  currency  was  rapidly  depre- 
ciating, the  loss  on  the  piincipal  would  more  than  offset  the 
interest;  this  fact  induces  the  circulation  of  interest-bearing 
notes.  The  subjoined  table  shows  of  seven  'different  classes 
of  paper,  the  depreciation  and  appreciation  for  four  years; 
gold  interest  is  reduced  to  paper,  and  the  whole  is  based  on 
the  merchandise  unit  of  value,  or  purchasing  power.  It  shows 
which  class  of  paper  depreciated  or  appreciated  most,  and 
affords  a  clue  as  to  which  kind  of  paper  would  disappear 
from  circulation  quickest.  When,  the  principal  and  interest 
being  both  considered,  the  paper  was  depreciating  in  value  it 
would  appear  in  circulation.  From  personal  observation  the 
writer  is  certain  that  many  of  the  interest-bearing  notes,  and 
even  the  5-20  six  per  cent,  bonds,  were  used  in  business  as 

*  Globe,  p.  1165,  2d  sess.  38th  Cong. 


10 


146 


AMERICAN  FINANCES. 


currency  as  late  as  1865,  the  year  when  the  table  shows  they 
ceased  depreciating  and  began  to  appreciate: 


Kinds  of  Obligations. 


Frac.  cur.  Greenbacks  and  bank  notes 
Temporary  loan  circulars  [10  D.  notice] . 

Two-vear  notes 

Certificate  of  indebtedness 

7.3 » notes 

6  per  cent,  bonds,  coin  interest 

6  per  cent,  bonds,  com  interest 


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Kinds  of  Obligations 


Frac.  cur.  Greenbacks 
■  Cl?l: 


and  bank  notes 
Temporary  loan  circillars   [10  D.  notice] 

Two-vear  notes 

Certificate  of  indebtedness 

7.30  notes 

5per  cent,  bond.s,  com  interest 

6  per  cent,  bonds,  com  interest 


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.07.1 

.16 

20  "years 

.11.5 

.32 

.20.5 

.M8.5 

.16 

s 

o 

.=  S      "3 

O 

H 

1865 

.16 

.21 

.21 

.22 

.23.3 

.23.1 

.25.4 


The  fall  of  the  value  of  the  paper  the  jBrst  three  years 
was  far  in  excess  of  the  interest,  rendering  the  hoarding  of 
any  Government  paper  unprofitable.  The  less  interest  it 
bore  the  more  rapidly  it  would  circulate.  The  close  of  the 
war  opened  a  large  territory  to  be  supplied  with  money.  Two 
lai'ge  armies  were  discharged,  and  men  who,  as  soldiers,  had 
been  destroying,  were  now  commencing  to  produce.  Their 
products  would  require  money  to  exchange  them,  and  prices 
would  fall  without  any  contraction. 

An  opinion  would  also  prevail  that  the  Government  would 
cease  to  inflate,  if  it  did  not  actually  contract  its  currency. 
This  would  lead  to  hoarding. 

The  time  which  a  note  might  have  to  run  before  becoming 
due,  would  also  have  an  influence,  those  runniag  the  shortest 
time  being  most  likely  to  circulate. 

The  circulation  of  paper  is,  moreover,  not  prevented  by 
making  it  of  high  denominations,  as  is  seen  by  the  following 


FINANCIAL  LEGISLATION  SINCE  THE  WAR.      147 


table,  which  shows  the  amount  of  greenbacks  and  bank  notes 
outstanding  November  1,  1879. 


Denominations. 


Ones  

Twos 

Fives 

Tens 

Twenties 

Fifties 

One  Hundreds.. 
Pive  Hundreds. 
One  Thousands. 
Five  Thousands. 
Ten  Tlrousands.. 


HS 


Total 

Less  destroyed  Chicago  fire. 


19.8 
1S.9 
61.6 
71.7 
68.8 
24.9 
:31.4 
22.0 
22.8 
3.3 
2.0 

347.7 
1.0 

346  7 


cq 


3.6 

2.1 

97.9 

109.7 

72.7 

21.3 

26.9 

.6 


335.1 


33.5.1 


a 
o 


C3 

O 

H 


22.9 

21.0 

1-J9.5 

1S1..3 

141. .5 

40.2 

58.3 

23.1 

23.1 

3.3 

2.5 

682.8 
J.O 


681.8 


By  virtne  of  the  options  granted  him  by  Congress,  Hugh 
McCulloch  had  almost  unlimited  power  over  our  finances. 
Never  before  did  such  vast  consequences  to  the  American 
people  depend  upon  the  option  of  the  Treasury  Department. 
Had  he  used  his  power  to  protect  and  foster  our  industries, 
by  making  the  bonds  positively  payable  in  currency,  and  by 
watching  the  condition  of  the  markets,  to  increase  the  cur- 
rency wnen  prices  fell  and  to  fund  when  they  rose,  he  might 
have  made  this  the  most  prosperous  nation  on  the  face  of  the 
globe.  Instead  of  protecting  the  people  by  the  use  of  a  cur- 
rency divorced  from  the  fluctuations  of  the  ''  money  of  the 
world,'^  he  followed  the  superstitions  of  the  past,  and  at- 
tempted resumption  by  contraction.  The  consequences  of 
this  course  are  beginning  to  be  felt  and  understood,  and  at 
no  very  distant  day  Hugh  McCulioch,  the  rich  London  banker, 
will  be  looked  upon  as  no  less  a  traitor  than  Benedict  Arnold, 
the  poor  fugitive  from  American  justice. 

§118.  By  the  sixth  section  of  an  act  of  the  same  date, 
amending  the  internal  revenue  law,  a  prohibitory  tax  of  10 
per  cent,  was  levied  upon  State  bank  circulation. 


148  AMERICAN  FINANCES. 

It  -will  thus  be  seen  that  the  banks  controlled  legislation. 
Previous  to  this  time  they  were  unwilling  that  State  bank 
circulation  should  be  taxed.  Now,  when  they  had  largely 
become  National  bankers,  they  were  willing  and  anxious  that 
competing  State  bank  circulation  should  be  taxed  out  of  ex- 
istence, to  make  room  for  their  notes.  They  successfully 
opposed  any  such  attempt  in  the  early  part  of  the  war,  when 
the  Government  needed  the  room  for  circulating  its  notes, 
and  the  whole  history  of  the  times  shows  that  Congress  was 
but  the  servile  tool  of  stock-jobbers  and  speculators,  and  be- 
trayed the  tax-payer  and  soldier  in  every  instance.  The 
result,  as  a  whole,  being  one  gigantic  swindle  "  b}'  act  of 
Congress." 

§  119.  The  following  table  shows  the  condition  of  the  debt 
at  the  highest  point,  August  31, 1865,  just  after  the  war  closed. 
The  public  debt  statement  of  the  following  June  is  the  high- 
est regular  statement,  which  is  168,523,747  lower,  and  is  the 
statement  upon  which  all  our  calculations  are  based.  This 
and  the  discrepancy  caused  by  the  difference  between  fiscal 
and  calendar  years,  reduces  the  result  somewhat,  and  our 
figures  do  not  show  the  full  amount  of  the  robbery. 

PUBLIC   DEBT   STATEMENT,  AUGUST   31,  1865. 

Funded  debt $1,109,568,182 

Matured  debt 1.503,020 

Temporary  loans 1107,148,713 

Certificates  of  indebtedness 185,093,000 

One  and  two-year  notes  of  1863 *t33.954,230 

Compound  interest  notes *t217.024,160 

Seven-thirty  notes 1830,000,000 

United  States  notes  (greenbacks) *433, 160.569 

Fractional  currency 26,344,742 

Suspended  requisitions  not  called  for 12,111,000 

Total $2,845,907,626 

tPayal)le  principal  and  interest  in  currency. 
♦Legal  tender. 


Am't  drawing  coin  interest . . 
Am't  drawing  currency  int . . 
Am't  drawing  no  interest  — 


$l,109,r)(*.8.192 
40;i,li!t,;53l 


av.  int.  5.9 
av.  int.  6.7 


coin  val.  5.9 
coin  val.  434" 


At  the  close  of  the  war,  interest-bearing  currency  began 


FINANCIAL  LEGISLATION  SINCE  THE  WAR.       149 

to  disappear.  The  average  rate  of  interest  on  the  $1,273,- 
220,103,  of  short  time  paper,  was  .06.7  per  cent.,  worth  in 
coin  4i  per  cent.  Speculators  begun  funding  this  rapidly 
into  bonds  drawing  6  per  cent,  in  coin,  the  result  being  a 
great  increase  in  the  coin  value  of  the  interest  paid.  It  will 
be  seen  by  the  tables  and  diagrams  that  the  coin  value  of  the 
total  interest  charge  was  less  at  the  close  of  the  war  than 
in  1879,  after  all  the  funding  and  reduction  of  the  nominal 
rate  of  interest.  At  the  outset  this  interest-bearing  currency 
was  distributed  quite  generally  among  the  people.  The  Sec- 
retary had  ample  power  under  the  law  of  March  3,  1865,  to 
settle  all  questions  as  to  the  payment  of  the  principal  of  the 
whole  of  the  bonds  issued  for  funding  purposes.  Had  he 
done  so,  it  would  have  changed  the  value  of  over  1,273  millions 
of  floating  debt  while  yet  in  the  hands  of  the  people.  He 
preferred,  however,  to  leave  it  an  open  question,  and  avoided 
specifying  how  the  bonds  issued  under  this  act  should  be 
paid. 

The  $600,000,000  authorized  as  additional  debt  were  called 
the  5-20's  of  1865,  and  those  further  authorized  for  funding 
M^ere  called  the  consols  of  1865,  1867,  and  1868. 

The  people  holding  the  short  time  obligations  of  the 
Government,  payable  as  they  then  were  in  currency,  both 
principal  and  interest,  had  no  notice  that  they  would  be 
otherwise  paid,  if  funded,  except  the  interest.  Such  being 
the  case,  those  engaged  in  funding  were  enabled  to  procure 
them  on  better  terms  than  they  would  had  it  been  known 
that  by  funding  into  bonds  the  contract  would  ultimately  be 
changed  from  paper  to  coin.  This  funding  was  not  com- 
pleted till  1869.  All  things  were  then  ready  for  the  ''  Public 
Credit  Act."  Meantime  certain  minor  operations  were  taking 
place. 

§  120.  Hugh  McCulloch  had  succeeded  Mr.  Pessenden  as 
Secretary  of  the  Treasury.  He  submitted  a  long  report,  in 
which  he  promulgated  a  new  doctrine  of  finance,  substan- 
tially reversing  the  policy  of  the  past  four  years  with  regard 
to  the  Government  issues.  After  an  enormous  and  unneces- 
sary inflation  of  the  currency,  which  had  involved  the  Gov- 
ernment in  a  debt   incurred   at   high   prices,  "Hugh,"  the 


150  AMERICAN  FINANCES. 

servile'  tool  of  stock  speculators,  advocated  that  tlie  policy 
of  the  Government  should  be  reversed.  Tiie  currency  should 
be  contracted  to  the  lowest  possible  point,  and  the  debt  paid 
at  low  prices.  It  was  exceedingly  fitting  that  the  Govern- 
ment should  receive  a  small  amoant  of  goods  for  its  bonds. 
It  was  now  as  eminently  proper  that  the  Government  should 
pay  a  very  much  larger  amount.  What  has  been  accom- 
plished in  this  direction  will  be  seen  b}*  glancing  at  the 
tables.  For  instance:  the  coin  value  borrowed  at  the  close 
of  the  war  was  $1,870,385,835.  In  1877  we  had  paid  $5^0,- 
007,190  coin  value,  and  owed  a  balance  of  $2,053,576,028. 
We  then  borrowed  $168,473,609,  and  paid  off  $214,778,496, 
and  now  we  owe  $2,101,952,034,  and  all  this  time  we  have 
paid  our  interest  in  full.  The  merchandise  transactions 
appear  as  follows:  In  1868  we  had  borrowed  the  equivalent 
of  39,574,190  tons;  we  had  paid  up  to  1877  10,335,068  tons, 
and  owed  a  balance  of  over  45,346,718  tons;  we  then  bor- 
rowed 4,171,348  tons,  when  we  owed  58,401,236;  we  then 
paid-4,643,860  tons,  and  now  owe  45,447,611  tons,  nearly  two- 
thirds  of  this  recent  reduction,  namely,  8,309,765  tons,  being 
due  to  the  inflation  of  the  past  year.  These  figures  are 
worthy  of  consideration  by  the  producers  and  tax-payers  of 
this  country. 

According  to  "  Hugh,"  the  banks  ought  now  to  have 
restored  to  them  the  full  control  of  the  currency.  Chase 
had  advocated  the  issue  of  the  greenbacks  as  a  Government 
right  incidental  to  its  power  to  coin  money  and  regulate  its 
value.  He  had  urged  the  suppression  of  bank  paper  as  an 
interference  with  that  power,  as  had  also,  before  his  time, 
Jefferson,  Jackson,  and  other  eminent  statesmen.  Now  all 
this  ought  to  be  reversed.  A  new  doctrine  of  "  war  meas- 
ure" was  now  brought  forward  in  these  words: 

*  "The  present  legal  tender  acts  were  war  measures,  and  while 
the  repeal  of  those  provisions  wlilch  made  the  United  ^States  notes 
lawful  money  is  not  now  recouuneaded,  the  Secretary  is  of  the 
opinion  that  they  ought  not  to  remain  in  force  one  day  longer  than 
shall  be  necessary  to  enable  the  people  to  prepare  for  a  return  to 
the  constitutional  currency." 

In  further  supp.rt  of  his  theory,  he  used  the  following 

♦Sec.  Kep.  39  Cong.,  ist  Sess,,  App.,  34  p. 


FIriANCIAL  LEGISLATION  SINCE  THE  WAR.      151 

language,  misquoting  the  Constitution  in  a  manner  to  fit  his 
theory  : 

"It  has  not  in  past  times  been  regarded  as  the  province  of 
4Jongi-ess  to  furnish  the  people  directly  with  mouey  in  any  form. 
This  authority  is  to  'coin  money  and  fix  the  value  thereof;'  and, 
inasmuch  as  a  mixed  currency,  consisting  of  paper  and  specie,  has 
been  found  to  be  a  commercial  necessity,  it  would  seem  also  to  be 
their  duty  to  provide,  as  has  been  done  by  the  National  Currency 
act,  that  the  paper  currency  should  be  secured  beyond  any  reason- 
able contingency.  To  go  beyond  this,  however,  and  issue  Govern- 
ment obligations,  making  them  by  statute  a  legal  tender  for  all 
debts,  public  and  private,  is  not  believed  to  be,  under  ordinary 
circumstances,  within  the  scope  of  their  duties  or  constitutional 
powers." 

All  this  is  in  direct  contravention  of  the  opinions  ©f  Sec- 
retary Chase,  as  will  be  seen  by  referring  to  page  121. 

In  regard  to  the  circulation  of  interest-bearing  obligations, 
he  said: 

"  In  addition  to  the  United  States  notes,  there  was  also  outstand- 
ing $32,536,900,5  per  cent.  Treasury  notes,  and  )$173.012,140  com- 
pound interest  notes,  of  which  it  would,  doubtless,  be  safe  to  esti 
mate  that  $30,000,000  were  in  circulation  as  currency. 

"  From  this  statement  it  appears  that,  without  including  7  3-10 
notes,  many  of  the  small  denominations  of  which  were  in  circula- 
tion as  money,  and  all  of  which  tend,  in  some  measure,  to  swell 
the  inflation,  that  the  paper  money  of  the  country  amounted,  on 
the  31st  of  October,  to  the  sum  of  $734,218,038.20." 

Another  concession  regarding  the  state  of  business  at  that 
time  is  of  importance: 

"It  is  undoubtedly  true  that  trade  is  carried  on  much  more 
largely  for  cash  than  was  ever  the  case  previous  to  1861,  and  that 
there  is  a  much  greater  proper  demand  for  money  than  there 
would  be  if  sales  were  made,  as  heretofore,  on  credit." 

He  claimed  contraction  was  necessary  to  prevent  a  specu- 
lative panic.  He  also  requested  Congress  to  authorize  him 
to  retire  the  greenbacks.  He  recommended  that  Congress 
settle  the  manner  of  payment  of  the  5-20s  of  1862  and  1864, 
saying : 

"Before  concluding  his  remarks  upon  the  national  debt,  the  Sec- 
retary would  suggest  that  the  credit  of  the  5-20  bonds  issued  under 
the  acts  of  February  25, 1862,  and  June  30, 1864,  would  be  improved 
in  Europe,  and,  consequently,  their  market  value  advanced  at 


152  AMERICAN  FINANCES. 

home,  if  Congress  should  declare  that  the  principal,  as  well  as  the 
interest  of  these  bonds,  is  to  be  paid  in  coin.  The  policy  of  the 
Government  in  re^'urd  to  its  funded  debt  is  well  understood  in  the 
United  States,  but  the  absence  of  a  provision  in  these  acts  that  the 
principal  of  the  bonds  issued  under  them  should  be  paid  in  coin, 
while  such  a  provision  is  contained  in  the  act  under  which  the 
10-40.S  were  issued,  has  created  some  apprehension  in  Europe  that 
the  5-20  bonds  might  be  called  in,  at  the  expiration  of  five  years. 
and  paid  in  United  States  notes." 

That  the  policy  was  not  well  understood  in  this  country  is 
evident  from  the  debates  in  Congress,  and  the  equivocal  letter 
of  Secretary  Chase,  implying  that  it  was  the  intention  of  the 
Government  to  pay  the  principal  of  the  debt  in  coin  standing 
alone  against  the  letter  of  the  law  and  pertinent  decisions  of 
the  courts. 

While  urging  the  propriety  of  settling  this  question, 
McCulloch  was  issuing  more  bonds  of  the  same  uncertain 
character,  and  this  in  the  face  of  the  fact  that  he  was  ex- 
pressly authorized  to  settle  the  question  by  a  stipulation  on 
the  face  of  the  bond. 

§  121.  The  act  of  April  12,  1866,  authorized  the  Secretary 
to  fund  the  greenbacks  into  bonds,  and  limited  him  to  $10,- 
000,000  the  first  six  months,  and  $1,000,000  per  month  there- 
after. It  also  continued  the  Funding  act  of  March  3,  1865, 
indefinitely.  If  Congress  supposed  contraction  was  neces- 
sary to  bring  paper  to  par  with  gold,  why  did  they  not  pro- 
vide for  contraction  of  bank  currency?  It  was  a  fact  well 
knoAvn  to  Congress  that  the  demand  note  had  been  at  par  with 
gold  ever  since  it  had  been  made  a  full  legal  tender  by  the 
act  of  March  17, 1862.  Why  did  they  not  try  the  same  thing 
on  the  greenbacks?  It  was  also  known  that  gold  had  been 
falling,  while  the  currency  had  been  inflating,  and  evidently 
par  was  not  so  much  desired  as  contraction  and  destruction 
of  the  greenback.  When  the  greenback  was  issued,  Congress 
was  careful  not  to  make  room  for  it  by  removing  bank  notes. 
Now,  however,  they  were  very  ready  to  remove  the  green- 
back to  make  room  for  such  notes, 

§  122.  Congress  assembled  December  3, 1866.  McCulloch's 
report  showed  a  revenue  in  excess  of  that  anticipated  of 
$90,000,000,  and  a  reduction  of  the  debt  about  $200,000,000. 


FINANCIAL  LEGISLATION  SINCE  THE  WAR.      153 

He  had  been  rapidly  funding  the  floating  debt,  and  had 
retired  all  the  greenbacks  that  the  law  allowed,  complaining 
that  he  had  been  restricted  in  that  particular.  He  claimed 
that  the  banks  had  inflated  about  as  fast  as  he  had  con- 
tracted. He  reported  an  increase  of  cash  on  hand  in  the 
Treasury  of  over  $40,000,000.  By  hoarding  greenbacks,  he 
had  evaded  the  law,  and  contracted  the  currency  to  that 
extent  in  excess  of  the  amount  the  law  allowed.  He  also 
deducted  the  cash  on  hand  from  the  debt,  although  such 
cash  had  been  procured  bj'  the  sale  of  bonds.  No  one  could 
for  a  moment  suppose  a  debt  paid  because  it  was  represented 
by  a  bond  drawing  6  per  cent,  interest  instead  of  a  greenback 
drawing  none,  or  that  hoarding  of  currency  is  not  equivalent 
to  retiring  it.     It  might  as  well  be  burned  as  hoarded. 

§  123.  The  act  of  March  2,  1867,  provided  for  the  issue  of 
3  per  cent,  certificates  to  retire  the  compound  interest  notes 
This  bill  was  introduced  by  the  Ways  and  Means  Committee, 
under  instructions  to  introduce  a  bill  to  prevent  further  con- 
traction of  the  currency.  These  compoui^d  interest  notes 
were  not  due  for  nearly  a  year,  and  were  held  bj'^  the  banks 
to  the  amount  of  about  $80,000,000  as  reserves.  Objection 
was  made  that  the  bill  did  not  conform  to  the  instructions  of 
the  House,  but  it  was  finally  accepted  upon  the  plea  that 
when  these  notes  came  due  they  must  be  funded,  and  that 
would  be  contraction.  On  motion  of  Mr.  Stevens,  the  bill 
was  stricken  out  and  a  substitute  adopted  providing  for  the 
payment  of  $100,000,000  of  these  notes  when  due  in  green- 
backs. This  raised  a  great  cry  of  inflation.  If  they  were 
serving  as  currency  at  the  time,  substituting  greenbacks  for 
them  could  not  be  inflation.  If  they  were  not,  then  the  fund- 
ing which  the  committee  plead  in  excuse  for  their  bill,  could 
not  be  contraction.  The  fact  was,  the  banks  were  getting  6 
per  cent,  on  reserves  which  they  must  hold,  and  which,  when 
the  law  was  first  passed  to  organize  National  Banks,  would 
necessarily  be  without  interest.  These  compound  interest 
notes  were  an  after  consideration  for  their  benefit.  Paying 
the  notes  in  greenbacks  would  exactly  restore  the  law.  This 
amended  bill  was  defeated  in  the  Senate,  and  the  result  was 


154  A3IERICAN  FINANCES. 

a  conference  committee  and  the  existing  law,  reducing  the 
interest  on  iheir  reperves  from  6  per  cent,  to  3.  This  bill 
allows  them  to  lend  three-fifths  of  their  reserves  to  the  Gov- 
ernment, and  still  pretend  to  have  them  all  on  hand.  This  act 
limi!:ed  the  amount  of  such  certificates  to  $50,000,000,  and 
the  act  of  July  25,  1868,  increased  the  amount  to  $75,000,000. 

§  124.  The  second  session  af  the  Fortieth  Congress  opened 
December  2,  1&67.  In  the  President's  message  we  find  the 
following: 

''  It  is  weil  and  publiclj^  known  that  enormous  frauds  have 
been  perpetrated  in  the  Treasury  Department,  and  that  colos- 
sal fortunes  have  been  made  at  the  public  expense." 

Hugh  McCuUoch  submitted  his  report  dated  November  30, 
which  was  lengthy  and  replete  with  arguments  in  favor  of 
contraction  and  resumption.  He  engaged  in  a  long  argu- 
ment to  prove  that  all  the  bonds  of  the  Government  were 
oi-iginally  payable  in  coin.  He  recommended  funding  the 
entire  debt  into  bonds  to  draw  6  per  cent,  interest,  and 
male  taxable  at  the  rate  of  1  per  cent.,  leaving  the  net  in- 
terest 5  per  cent. 

From  the  report  we  take  the  following  table  and  statement 
showing  the  contraction  up  to  November  30,  1867. 

Public  Debt  Statement  November  30,  1867. 
Debt  Bearing  Coin  Interest. 

5  per  cent,  bonds •  •  •  $  198,845,350 

6  per  cent,  bonds.  "67,  and  '68  . . .       14.690,941 

6  per  cent,   bonds,  1881 283,676,600 

6  per  cent,  bonds,  5-20's 1,267.898,100 

Navy  pension  fund 13,000,000 

$1,778,110,991 
Debt  Bearing  Currency  Interest. 

6  per  cent,  bonds. $  18.042,000 

3  year  compound  int.  notes 62,558,940 

7.30  3  year  notes 334,607.700 

3  per  cent,  certif 11,560,000 

426,768,640 


FINANCIAL  LEGISLATION  SINCE  THE  WAR.      165 

Matured  Debt. 

3  year  7.30  Aug.  15,  '67 ^3,371.100 

Compound  int.  notes 9,316,100 

Texasbonds 262,000 

Treasury  notes  '61,  and  prior 163,662 

Bonds  of  1842 54,061 

1  and  2  year  notes,  March  3,  '63 868.240       . 

Temp,  loan  certif 4,168.375 

Ind. 34,000 


No  Interest. 

U.  S.  notes  (greenbacks), $357,164,844 

Frac.  cur 30,706.633 

^old  certif 14,514,200 


18,237,538 


402,385,677 

Total  Debt $2,625,502,848 

Coin  in  Treasury $111,540,317 

Currency  in  Treasury 22,458,081 

Total  in  Treasury $133,998,398 

We  find  the  contraction  to  have  been  as  follows  : 
Legal  Tenders  and  Fractional  Currency  Aug.  31,  '65. 

U.  S.  notes, $433,160,569 

5  per  cent.  1  and  2  year  notes 33.954,230 

Compound  int.  notes 217,024,160 

Frac.  currency 26,344,724 

$710,483,683 
On  November  30, 1867. 

U.  S.  notes $357,164,844 

Comp.  int  notes 71,875.040 

5  per  cent.  1  and  2  year  notes 868.240 

3  per  cent,  certificates ...     11,560,000 

Frac.  cur 30,706,633 


472,174,757 


Contraction  of  legal  tenders $238,308,926 

Other  paper  used  as  currency  to  some  extent,* 
Outstanding  August  31, 1865. 

Temp,  loan  certif $107,148,713 

Certif.  of  indebt 85,093.000 

7.30  Treasury  notes 830,000,000 

$1,022,241,713 


*  See  pages  146  and  151. 


156  A3IERICAN  FINANCES. 

Outstanding  I^ovember  30, 1867. 

Temp,  loan  certif %    4.168,375 

Certif .  of  indebt 34,000 

7-30  Treas.  notes 337,978,800 


342,181,175 

Reduction $680,060,538 

Cash  in  Treasury.  "65 $  88.218,055 

Cask  in  Treasury.  "67 133,998,398 

Hoarding  in  Treasury $45,780,343 

Thus  in  two  years  and  three  months  the  legal  tenders  and 
fractional  currency  had  been  contracted  to  the  amount  of 
$238,308,926,  other  forms  of  currency  to  the  amount  of  $680,- 
060,538,  and  money,  chiefly  gold,  had  been  hoarded  in  the 
Treasury  to  the  extent  of  $45,780,343.  Yet  when  the  pro- 
cess began,  August,  1865,  gold  was  worth  in  paper,  1.43,  and 
now,  November,  1867,  1.39.  From  the  falling  price  lines 
of  the  diagram  it  can  be  seen  that  both  coin  and  paper  were 
appreciating,  and  funding  and  hoarding  was  defeating  con- 
traction as  a  means  of  bringing  paper  to  a  par  with  coin. 
This  will  be  plain  when  we  consider  that  the  funded  debt, 
which  was  the  only  debt  drawing  coin,  had  been  increased  as 
follows:  Funded  debt,  1865,  $1,109,568,191;  1867,  $1,778,- 
110,991;  increase,  $668,552,800;  adding  to  the  coin  interest 
the  amount  of  $40,113,168  annually. 

That  the  disastrous  consequences  was  not  immediately  felt 
is  accounted  for  by  the  rapid  rise  of  the  loans  and  discounts. 
People  were  generally  out  of  debt,  and  contraction  can  be 
better  borne  under  such  circumstances.  This  resort  to  credit 
broke  the  fall  of  prices  somewhat,  and  served  to  bring  grist 
to  the  mill  of  the  usurers.  Of  course  such  a  substitution  of 
credit  for  cash  could  not  continue  without  ultimately  ending 
in  a  panic,  but  it  accounts  for  the  dehiy. 

§  125.  The  act  of  March  26,  1867,  is  a  curiosity  of  legisla- 
tion and  "  speaks  for  itself."  It  will  be  found  in  the 
appendix  in  full.  Its  principal  feature  is  a  10  per  cent,  tax 
levied  on  municipal  scrip.  The  title  of  the  act  is  to  exempt 
certain  articles  from  tax  "and  for  other  purposes,"  the  only 
"other  purpose"    being  to   levy   a  tax.      The   flrst    section 


FINANCIAL  LEGISLATION  SINCE  THE  WAR.      157 

exempts  certain  kinds  of  paper  fi-om  tax,  and  the  third  all 
other  kinds.  A  single  section,  exempting  all  paper,  would 
have  been  exactly  the  same  as  the  two  combined,  but  between 
them  is  a  section  levying  a  tax  of  10  per  cent  on  municipal 
scrip.  This  is  evidently  designed  to  give  a  monopoly  of  the 
circulation  to  National  Banks,  and  is  a  good  sample  of  bank 
legislation.  The  United  States  Bank  got  its  charter  from 
the  State  of  Pennsylvania  in  like  manner  after  Jackson's 
veto  of  the  bill  for  its  re-charter. 

§  126.  The  act  of  February  4.  1868,  stopped  the  further 
destruction  of  greenbacks.  Contraction  by  funding  and 
hoarding  in  the  Treasury  still  remained.  This  bill  became  a 
law  without  the  signature  of  the  President. 

§  127.  The  Fortieth  Congress  assembled  for  its  third  ses^ 
sion  December  7,  1868.  In  his  report  the  Secretary  of  tht 
Treasury  gave  a  statement  of  receipts  and  disbursement! 
since  the  war,  which  he  sums  up  as  follows: 

*  It  is  thus  shown  that  within  a  period  of  three  years  and  seven 
months  the  revenues,  or  receipts  from  all  sources  of  revenue,  reach 
the  enormous  sum  of  !$1,0G2,496,002,  and  that  $630,431,125  were  paid 
on  debts  which  were  actually  due  at  the  close  of  the  war,  and  for 
bounties  which,  like  the  pay  of  the.  army,  were  a  part  of  the 
expenses  of  the  war,  adding  the  amount  thus  paid  to  the  debt  as 
exhibited  by  the  books  of  the  Treasury  on  the  first  day  of  April, 
1S65.  It  appears  that  the  debt  of  the  United  States  at  the  time 
was  .^2,997,386,203,  and  that  the  actual  reduction  has  been  -$470,256,- 
650,  and  but  for  the  advances  to  the  Pacific  roads  and  amount  paid 
for  Alaska,  would  have  been  8519,050,6.50. 

He  again  called  attention  to  the  question  of  the  payment 
of  the  5-20  bonds.  He  criticis.ed  severely  the  practice  of  the 
banks  in  certifying  checks  drawn  against  prospective  depos- 
its. He  thought  it  unwise  that  banks  should  pay  interest 
on  deposits,  since  such  a  course  inevitably  induces  pushing- 
loans  and  discounts  to  their  utmost  limit.  He  recommended 
that  they  be  prohibited  by  law  from  paying  such  interest. 
He  also  recommended  that  the  Comptroller  be  authorized  to 
fix  the  time  when  the  banks  should  report,  as  they  disturbed 
the  market  by  making  preparation  for  quarterly  statements. 
In  other  words,  they  did  not  have  the  lawful  reserves  on 
hand  except  when  making  reports. 

*  Secretary's  Report,  December,  1868,  supplement  of  the  Globe,  p.  16. 


158  AMERICAN  FINANCES. 

§  128.  The  only  financial  legislation  of  consequence  during 
this  session  was  the  act  known  as  the  Public  Credit  act,  the 
full  text  of  which  will  be  found  in  the  appendix  as  the  act 
of  March  18,  1869. 

The  bill  was  introduced  in  the  House  by  Mr.  Schenck,  and 
contained  a  section  legalizing  coin  contracts,  which  was 
eventually  stricken  out.  This  bill  was  introduced  January 
20,  ordert'd  printed  in  the  Globe,  and  referred  to  the  Ways 
and  Means  Committee.  The  same  day  Mr.  Schenk  entered 
a  motion  to  reconsider.  On  February  20,  a  month  after- 
ward, he  called  up  the  bill,  which  thus  came  before  the  House 
without  any  report  upon  it  from  the  committee.  After  mak- 
ing a  long  speech  in  its  favor,  Mr.  Schenk  sprung  the  pre- 
vious question.  This  being  seconded,  he  then  parceled  out 
the  remaining  hour  to  friends  of  the  bill,  with  but  one  or  two 
exceptions.  He  thus  forced  the  bill  to  a  vote  without  giving 
its  opponents  any  opportunity  to  debate  it.  The  history  of 
the  bill  gives  evidence  of  fraud  when  we  consider  that  many 
of  the  members  were,  by  their  votes,  enhancing  the  value  of 
bonds  in  their  own  pockets.  It  will  be  readily  seen  that 
there  is  need  of  a  provision  in  the  Constitution  prohibiting 
members  of  Congress  from  voting  on  questions  in  which 
they  are  directly  and  personally  interested.  Members  of 
Congress  should  never  be  allowed  to  cast  a  vote  by  which 
they  are  enabled  to  change  a  contract  held  by  themselves 
against  the  tax-payers  of  the  country. 

If  a  man  change  the  amount  of  a  note  in  his  possession^ 
he  becomes  liable  as  a  criminal.  Contraction  produced  pre- 
cisely the  same  result. '  Doubling  the  value  of  the  dollar  is 
the  same  in  effect  as  doubling  the  number  of  dollars.  If 
the  latter  method  succeed,  it  defrauds  one  debtor  and  is  called 
forgery,  while  the  former,  if  successful,  defrauds  millions  of 
debtors  and  is  called  able  financiering.  If  one  is  a  crime,  so 
is  the  other.  The  very  title  of  the  bill  indicates  contem- 
plated robbery,  when  taken  in  connection  with  the  measures 
proposed.  But  two  ways  were  possible  to  improve  the  credit 
of  the  Government.  One  would  be  to  improve  the  prospect 
of  paying  otf  its  obligations;  the  other,  to  change  the  nature 
of  the  contract  in  favor  of  the  holders.     Neither,  however^ 


FINANCIAL  LEGISLATION  SINCE  THE  WAR.      159 


was  necessary.  We  had  canceled  our  matured  obligations 
promptly.  We  had  raised  the  enormous  revenue  of  $1,662,- 
±76,062  in  three  years  and  seven  months.  We  had  funded 
an  enormous  amount  of  debt  bearing  currency  interest,  worth 
in  coin  less  than  5  per  cent.,  into  bonds  drawing  6  per  cent, 
in  coin. 

Our  bonds  were  advancing  in  value  as  compared  to  currency, 
and  the  currency  was  appreciating  as  compared  to  coin. 
There  was  no  need  of  strengthening  the  public  credit.  No 
attempt  was  made  to  do  so  by  improving  the  prospect  of  pay- 
ment. The  other  course  was  taken.  It,  like  some  other 
legislation,  defeated  the  end  supposed  to  be  sought,  by 
promising  that  which  the  bondholders  knew  could  not  be 
had.  Had  the  bill  provided  that  each  $100  of  bonds  which 
had  been  bought  for  $i9  in  gold  should  not  only  draw 
coin  interest,  but  should  be  esteemed  worth  at  the  end  of 
each  year  one  dollar  more  in  coin,  tax-payers  would  have  at 
once  resented  it  as  a  steal  of  one  dollar  a  year.  It  is  easily 
seen,  however,  that  by  such  a  system  bonds  that  in  1865  were 
worth  $19  would  now  be  worth  only  $6i.  It  is  clear,  however, 
that  as  they  are  worth  now  $108,  they  have  advanced  $57^ 
more  than  $3  per  year,  using  gold  as  a  basis.  If,  however,  we 
use  the  ton  of  merchandise,  we  shall  find  that  the  bond, 
which  was  then  worth  $19,  is  worth  in  1879  $149,  a  clear  gain 
of  $100,  or  %QM  per  year.  On  the  10.40s  the  gain  was  $6.82 
per  year. 

The  table  below  gives  the  value  of  bonds  in  currency,  and 
currency  in  coin,  at  the  close  of  the  war,  also  just  before  and 
just  after  the  Credit  Act  and  at  resumption: 


Year. 


1865,  Close  of  tlie  war. . 
1868.  Be  to  re  Credit  Act 

18(i9,  After 

ISTP*,  Resurnption 


0; 

4J    CC 

X 

^ 

T.  t3 

OJ    = 

f/3 

re  CO 

o  c 

-Year 

f  1861. 

Sjco 

o  o 

(N 

lo 

>o 

1.07 

1.05 

.96 

1.13 

1 .09 

1.04 

l.!S 

1.17 

l.i'J 

1 .08 

1.03 

l.Oo 

n.  "^ 

>^ 

r-l 

c  o 
O 

.46 

.71 

.75 

1.00 


160 


AMERICAN  FINANCES. 


By  estimating  tlie  gold  value  of  bonds,  the  table  would 
stand  thus: 


Year. 

EC 

>< 
m   • 

1—1 

cico 

(M 

5-20  Bonds  of 
1862  &  1864. 

Coin  Value  of 
Currency. 

186.5 

.49 

.80 

.88 

1.08 

.48 

.77 

.87 

1.03 

.44 

.74 

.84 

1.06 

46 

1868 

.71 

1869 

,75 

1879.'. 

1.00 

It  may  be  claimed  that  this  bill  only  settled  a  question 
which  had  long  been  open,  and  which  should  have  been 
settled  before.  True,  it  should  have  been  settled  before 
ever  the  bonds  ivere  issued.  It  does  not  follow,  however,  that 
after  the  bonds  were  taken  it  should  have  been  settled  at  all 
by  legislation,  nor  does  it  follow  that  it  should  ever  have  been 
settled  in  a  manner  to  defraud  the  people.  We  have  seen 
that  this  dispute  was  in  existence  when  we  were  borrowing, 
and  we  infer  that  the  question  was  left  open  purposely  to 
depreciate  the  bonds.  It  was  raised  as  early  as  March,  1864, 
and  in  June  of  the  same  year  Congress  refused  to  insert  the 
words  "  in  coin."  In  almost  every  report  the  Secretary  of 
the  Treasury  urged  Congress  to  legislate  upon  the  matter. 
By  the  terms  of  the  act  of  March  3,  1865,  the  Secretary  was 
distinctly  empowered  to  settle  the  whole  matter  by  funding; 
and,  acting  under  this  ample  authority,  with  criminal  neglect, 
he  issued  nearly  all  the  bonds  then  in  dispute,  without  speci- 
fying the  manner  of  payment.  We  therefore  conclude  pre- 
meditated depreciation  to  be  at  the  bottom  of  the  whole 
matter.  This  act  violated  several  well-settled  principles  in 
law.  It  gave  an  added  pledge,  and  additional  consideration 
to  public  creditors  for  nothing  whatever.  Contracts  without 
consideration  are  void  in  law,  and  prima  facie  evidence  of 
fraud.  It  made  the  entire  bonded  debt  usurious,  and  in 
ordinary  business  between  individuals  would  entitle  the  debtor 
to  relief  in  the  courts. 

"  Every  shift,  device,  or  subterfuge  which  the  ingenuity  of  man 
can  invent  to  take  unlawful  interest,  either  directly  or  indirectly, 


FINANCIAL  LEGISLATION  SINCE  TIfE  WAR.       161 

or  by  any  shift  or  deceitful  way  or  means,  is  included  in  the  pro  - 
visions  of  the  statutes  (against  usury). 

Neither  are  cases  of  usury  confnied  to  precise  loans  of  money 
but  they  extend  to  cases  Avhere  the  relation  of  debtor  and  creditor 
exists,  and  to  cases  where  the  relationship  subsists  by  the  sale  of 
wares,  merchandise,  and  commodities.      (Schoales  vs.  LeFroy,  192.) 

When,  upon  an  application  for  the  loan  of  money,  it  is  by  agree- 
ment made  a  condition  of  the  loan  that  the  borroAver  shall  receive 
from  the  lender  uncurrent  bills  at  a  liigher  rate  than  their  value 
in  cash  or  current  funds,  the  loan  is  usurious."  (Cleveland  vs. 
Loeder,  7  Paige,  557.) 

"  A  note  payable  in  dollars  for  nominal  amount  of  loan  in  Com- 
monwealth Bank  notes  is  usurious,  and  relief  will  be  granted  to 
the  extent  of  the  usury,  which  is  ascertained  by  the  value  in  gold 
and  silver  of  the  notes  loaned  at  the  time,  and  computing  interest 
at  the  legal  rate  upon  that  value,  the  difference  being  the  usury." 
(4  J.  J.  M.,  48 ;  2  Dana,  225 ;  IJ.  J.  M.,  49 ;  1  John.  Chy.,  193 ;  2  John. 
Chy.,  537. 

Garrett  Davis,  of  Kentucky,  introduced  a  resolution  author- 
izing public  creditors  to  sue  in  the  courts,  and  have  their 
claims  adjusted,  This  resolution  was  promptly  rejected  by  a 
venal  Congress. 

It  was  an  attempt  of  Congress  to  usurp  the  functions  of 
the  Supreme  Court.     Mr.  P.  Van  Trump,  of  Ohio,  set  this 
matter    forth    very   clearly   at  the   time   in   the   following 

language : 

*  "In  other  words,  it  enacts,  as  against  the  law  of  contracts,  that 
all  implications,  whether  of  law,  logic,  or  facts,  shall  be  in  favor  of 
gold,  in  despite  of  all  the  equities  in  aid  of  a  different  construction 
as  to  other  lawful  money,  made  so  by  statutes  equally  solemn  and 
imperative." 

Chancellor  Kent  settles  the  question: 

"It  seems  to  be  settled  as  the  sense  of  the  courts  in  this 
country,  that  the  Legislature  cannot  pass  any  declaratory  law,  or 
acts  declaratory  of  what  the  law  was  before  its  passage,  so  as  to 
give  it  any  binding  weight  with  the  courts.  It  is  only  evidence  of 
the  sense  of  the  Legislature  as  to  the  pre-existing  law. 

The  powers  of  government  in  this  country  are  distributed  in 
the  departments,  and  each  department  is  confiued  within  its  con- 
stitutional limits.  The  power  that  makes  is  not  the  power  that 
construes  the  law.  That  latter  trust  belongs  to  the  Judicial 
Department  exclusively."  (Kent,  513,  IS'otes.) 
Although  it  did  not  amend  any  previous  law,  it  gave  a  new 

*  Globe  app.,  p.  233,  3rd  sess.,  40tli  Cong. 

10 


162  '      AMERICAN  FINANCES. 

construction,  which  was  the  equivalent  of  such  an  amend- 
ment. The  act  o£  February  25,  1862,  declared  the  o;reenback 
to  be  lawful  money  and  legal  tender  for  all  debts  except  two 
kinds.  This  bill  declared  that  it  should  not  be  a  legal  tender 
for  still  another  kind,  and  necessarily  amounted  to  an  added 
exception,  setting  aside  and  reversing  all  the  usual  rules  of 
construction.  If  it  be  replied  that  Congress  is  sovereign  and 
the  law-making  power,  and  therefore  not  bound  by  any  such' 
rules,  we  reply  that  if  it  is  not  bound  in  the  doing,  it  is  not 
bound  in  the  undoing.  If  the  opinions  and  decisions  cited 
do  not  apply,  then  the  law  of  contracts  does  not  apply,  and 
cannot  be  urged  if  Congress  should  see  fit  to  undo  the  mis- 
chief. The  principles  of  justice  are  the  same  under  all  cir- 
cumstances. Furthermore,  Congress  is  not  sovereign  in  the 
United  States;  but  the  people,  and  the  fundamental  law, 
known  as  the  Constitution,  is  superior  to  Congress. 

By  the  first  funding  act,  the  Secretary  of  the  Treasury  was 
permitted  to  exchange  bonds  expressly  payable  in  papei ,  for 
bonds  which  he  might  ''  option  "  to  be  redeemed  in  paper,  in 
coin,  or  indefinite  as  to  their  redemption.  He  "  optioned  "  to 
refund  into  indefinite  bonds  nearly  one  billion  of  paper  bonds. 
By  the  act  to  strengthen  the  public  credit,  these  indefinite 
bonds  were  declared  redeemable  in  coin.  Any  attempt  to 
work  this  fraud  directly  and  by  one  step  would  have  failed, 
because  the  people  must  have  understood  it.  The  two  acts 
amount  to  a  direct  repudiation  of  the  original  contract,  for 
the  benefit  of  the  bondholders. 

It  is  as  though  the  agent  of  a  lumbering  firm  had  con- 
tracted  to  deliver  a  large  amount  of  comm:)n  lumber,  and 
had  conspired  with  the  holders  of  these  contracts  to  defraud 
his  employers,  by  "  funding,"  or  changing  them,  first  into 
contracts  specifying  merely ''lumber,"  then  strengthening 
the  credit  of  the  firm  by  construing  "lumber"  to  mean  first 
clear  whenever  the  quality  was  not  specified;  all  this  in  the 
face  of  the  fact  that  only  common  lumber  was  paid  for  at 
the  outset,  such  transactions  would  send  the  conspirators  to 
the  penitentiary,  and  a  business  man  that  would  quietly  sub- 
mit to  such  fraud  would  be  con;  idered  an  idiot. 

§  129.  The  next  move  in  the  game  was  to  refund  the  debt 


FINAI^CIAL  LEGISLATION  SINCE  THE   WAR.      163 

at  a  lower  nominal  rate  of  interest.  By  the  first  section  of 
the  act  of  July  14.  1870,  yie  Secretary  might  issue  for  this 
purpose  S200,(X)0.000  of  5  per  cent,  bonds,  payable  after  ten 
years,  $300,000,000  of  4^  per  cent,  bonds  payable  after  fifteen 
years,  and  $1,000,000,000  of  4  per  cent,  bonds  payable  after 
thirty  years.  Previous  to  the  passage  of  the  Credit  act,  when 
it  was  a  disputed  matter  as  to  coin  payment.  Congress  refused 
to  specify  coin  in  the  authorizing  acts,  as  we  have  seen,  and 
rejected  Mr.  Brooks'  amendment.  Now  they  insert  not  only 
the  words  ''  in  coin,"  but  also  this  curious  and  important 
clause,  "•  coin  of  the  present  standard  valued  . 

The  Credit  act  merely  pledged  coin,  and  Congress  could,  by 
reducing  the  weight  of  coins,  yet  remedy  the  injustice  done 
by  the  change  in  the  manner  of  payment.  Upon  any  con- 
struction of  this  clause,  if  it  were  binding,  this  could  not 
now  be  done.  The  phrase  ""present  standard  ralue,'^  is  open 
to  construction,  and  may  be  made  to  mean  either  coin  of  the 
present  weight,  or  coin  of  the  present  value.  The  latter  con- 
struction, however,  would  imply  that  the  value  of  coin  could 
change,  and  if  such  was  intended,  the  word  '^ standard" 
would  have  been  omitted.  It  is  evidently  designed  to  pave 
the  way  for  further  robbery.  If  coin  should  really  advance, 
it  would  be  argued  that  the  weight  could  not  be  changed, 
and  the  rascals  would  lay  stress  on  the  word  "standard." 
Should  coin  fall  in  value,  they  would  then  accent  the  word 
value,  and  insist  upon  an  increase  of  its  weight. 

As  to  its  constitutionality,  it  is  purely  buncombe  legislation, 
like  the  limit  of  $450,000,000  put  upon  the  greenbacks. 

Congress  has  a  right  at  all  times  to  exercise  the  powers 
delegated  to  it  by  the  Constitution,  and  no  Congress  can  law- 
fully limit  a  future  Congress,  nor  put  any  hindrance  in  the 
way  of  its  exercising  the  same  power. 

This  section,  for  the  first  time,  exempted  the  bonds  from 
taxation  by  United  States  authority.  The  argument  in  favor 
of  such  exemption  is  plausible,  but  fallacious.  We  are  told  that 
if  the  Government  issues  a  bond,  and  taxes  it  2  per  cent, 
with  other  property,  it  will  have  to  pay  2  per  cent,  more 
interest  in  order  to  negotiate  the  loan.  This  would  result  in 
the  folly  of  collecting  njoney  as  taxes,  and  returning  it  as 


164  AMERICAN  FINANCE!^, 

interest.  A  plausible  proposition  surely.  Let  us  see  how  it 
works.  Suppose  the  ratio  of  otlier  taxation  should  change. 
Paying  8  per  cent,  interest  on  bonds  taxed  2  per  cent,  is 
•equivalent  to  paying  6  per  cent,  on  untaxed  bonds.  Change 
now  the  rate  of  tax  to  4  per  cent.,  and  the  untaxed  sixes  are 
2  per  cent  better  than  the  taxed  eights.  Any  increase  also 
in  the  value  of  the  money  unit  would  result  in  the  same 
manner.  Two  per  cent  taxes,  when  money  is  worth  50  is 
only  half  as  much  as  when  money  is  worth  100.  It  matters 
nothing  to  the  untaxed  bondholder  how  much  taxes  are  in- 
creased, as  he  escapes  all  the  increased  harden. 

On  the  other  hand,  it  might  occur  that  a  reduction  of 
taxes  or  of  valuations  would  work  injustice  to  the  bond- 
holder. The  only  equitable  way  is  to  increase  and  decrease 
the  taxes  on  bonds  equally  with  other  United  States  taxation. 
By  a  reference  to  the  diagram  No.  9,  it  is  seen  that  the 
merchandise  value  of  the  United  States  revenues  steadily  in- 
creased, indicating  that  the  untaxed  bondholder  escaped  a 
part  of  his  share  of  the  tax.  Of  course  this  may  have  been 
offset  to  a  slight  degree  by  an  increase  of  the  tax-paying 
ability  of  the  people. 

The  objection  to  taxing  bonds  on  the  ground  of  the  expense 
of  collecting  money  as  taxes  and  disbursing  it  as  interest  is 
wholly  unfounded.  It  is  the  easiest  tax  in  the  world  to  col- 
lect, as  it  can  be  deducted  from  the  interest,  requiring  no 
assessment,  and  allowing  none  to  escape.  The  objection  that 
foreigners  would  not  buy  such  bonds  can  hardly  be  valid,  for 
they  would  be  worth  as  much  to  them  as  to  o«r  own  citizens. 
They  would  take  chances  on  our  taxation.  They  are  com- 
pelled to  do  that  now,  for  if  we  did  not  tax  we  could  not  pay 
them.  Increased  taxation  increased  our  ability  to  pay, 
which  in  turn  increases  the  value  of  the  bonds,  and  this  ad- 
vance being  at  no  expense  to  them,  the  tax  could  and  would 
be  afforded. 

Section  2  of  the  act  authorizes  the  exchange  of  these 
bonds  for  the  5-20's,  or  the  sale  of  them  for  coin  with  which 
to  purchase  5-20  bonds.  These  transactions  were  to  be  at 
par. 

Section   3   provides  that  when  the   bonds  become   payable, 


FINANCIAL  LEGISLATION  SINCE  THE  WAR.      105 

.the  Secretary  may,  at  his  option.,  in  the  order  in  which  they 
were  issued,  call  them  in  and  pay  them  off. 

Section  4  authorizes  the  Secretary  to  pay  5-20  bonds  at  par 
in  coin. 

Section  5  authorizes  what  is  known  as  gold  certificates. 
The  Secretary  might  receive  gold  coin,  and  issue  certificates 
therefor,  to  draw  not  more  than  2^  per  cent,  interest,  the 
interest  to  cease  at  his  option.  These  certificates  were  to  be 
received  at  par  for  bonds,  and  25  per  cent,  of  the  coin  thus 
received  was  to  be  retained  as  a  redemption  fund,  and  the 
balance  to  be  used  in  purchasing  5-20  bonds.  These  certifi- 
cates were  nothing  more  or  less  than  paper  gold,  and  had 
only  25  per  cent,  gold  basis,  the  rest  being  confidence. 

Section  6  relates  to  the  sinking  fund. 

§  180.  The  act  of  July  12,  1870,  authorized  an  additional 
issue  of  51,000,000  bank  notes,  and  provided  for  retiring  the 
three  per  cent,  certificates. 

During  the  years  1869  and  1870,  we  find  some  curious 
movements  of  the  diagram  lines.  The  contraction  of  the 
currency  was  stopped  in  1869,  but  prices  continued  to  fall 
until  1871  against  expanding  loans  and  discounts  and  sta- 
tionary currency.  We  find  a  large  importation  of  coin  and 
bullion,  although  coin  prices  were  high.  These  apparent  ab- 
normal movements  were  in  consequence  of  the  exportation 
of  bonds  in  1870.  The  5-20  bond  then  cost  a  foreign  investor 
about  87  cents,  and  would  draw  six  cents  in  coin,  which  was 
nearly  7  per  cent.  These  cheap  and  desirable  bonds  operated 
exactly  as  an  article  of  export,  serving  to  retain  our  goods 
and  bring  in  foreign  merchandise,  resulting  in  depressed 
prices.  While  paper  prices  were  falling  gold  prices  were 
rising.  By  the  standard  of  paper,  goods  were  getting  cheaper; 
by  the  standard  of  gold  they  were  getting  dearer.  The  in- 
creased supply  of  gold  had  reduced  its  value. 

§  131.  By  the  act  of  February  12,  1873,  silver  was  demone- 
tized, and  the  legal  standard  limited  to  gold.  Up  to  that 
time,  either  gold  or  the  old  silver  dollar  of  4121-  grains  could 
be  tendered  in  payment  of  debt.  This  act  simply  dropped 
out  the  old  silver  dollar.  It  made  no  change  in  the  weight 
of  the  minor  coins,  and  limited  the  tender  of  such  silver 


166  AMERICAN  FINANCES. 

coin  to  five  dollars  aud  under.  The  old  silver  dollars  already  . 
out  were  demonetized  by  the  revision  of  the  statutes^  June 
22,  1875,  sections  3,585  and  3,586.  These  laws  were  all 
passed  when  coin  was  out  o£  use,  and  silver  about  3  per  cent, 
above  gold.  They  excited  but  little  debate  and  no  public 
attention.  The  history  of  their  passage  shows  that  the 
majority  of  Congress  did  not  know  that  the  old  dollar  had 
been  omitted.  It  was  taken  out  in  conference  committee, 
and  the  report  pushed  through  without  debate.  It  was 
repeatedly  stated  in  reply  to  inquiries  that  the  bill  made  no 
chanse  in  the  coins  or  devices,  but  was  a  codification  of  the 
laws.  The  omission  in  the  Revised  Statutes  was  clearly  un- 
authorized, and  there  was  no  means  of  knowing  it,  as  the 
report  was  not  read,  and  could  not  be,  on  account  of  its 
length. 

It  is,  of  course,  utterly  inpossible  that  two  articles  of  mer- 
chandise should  always  have  a  fixed  relative  value;  therefore, 
with  a  double  standard,  as  they  change  in  value,  whichever 
happened  to  be  the  lowest  will  be  in  use. 

The  first  coinage  law  of  1794  fixed  the  ratio  of  gold  to 
silver  as  one  to  fifteen,  the  silver  dollar  being  416  grains 
weight.  371i  grains  pure  silver;  the  gold  dollar  27  grains,  24f 
pure  gold.  This  proportion  made  silver  the  cheapest.  Gold 
was  practically  out  of  circulation,  and  the  coinage  at  the 
mint  was  mostly  silver.  In  1834  the  weight  of  gold  coin 
was  reduced  to  25.8,  and  in  1837  silver  was  reduced  to  412^ 
grains.  The  alloy  in  the  silver  being  the  only  reduction,  the 
fine  silver  remained  the  same.  Both  w^ei-e  Ijrought  to  9-10 
fine,  however,  which  made  the  pure  gold  in  one  dollar  but 
23.22  grains.  This  reduction,  together  with  the  supply  of 
gold  which  later  came  from  the  mines  of  California,  rendered 
silver  the  more  valuable.  In  1853,  to  remedy  this,  the  frac- 
tional coins  were  reduced  in  weight  to  384  grains  to  the  dol- 
lar, which  made  it  worth  about  95  cents  in  gold,  and  the 
remainder  of  the  value  maintained  by  restricting  the  supply. 
This  is  subsidary  coinage,  and  in  this  way  only  can  more 
than  one  metal  circulate  at  the  same  time.  The  silver  dollar 
of  412^  grains  was  retained,  however,  and  would  operate  at 
any  time  to  protect  debtors  in  case  gold  should  advance. 


FINANCIAL  LEGISLATION  SINCE  THE  WAR.       167 

This  principle  of  maintaining  the  value  of  suhsidary  coin  is 
the  basis  of  a  correct  paper  money  system.  By  taking  out  a 
part  of  the  bullion  and  restricting  the  supply,  silver  is  main- 
tained at  par  with  gold.  Whether  the  silver  removed  be  5 
per  cent,  or  95  per  cent,  is  unimportant;  its  value  as  money 
depends  upon  the  demand  for  it  as  moiieij,  coupled  v\rith  a  re- 
striction in  its  supply  being  entirely  independent  of  its  bul- 
lion value.  By  the  use  of  a  double  standard,  greater  steadi- 
ness is  obtained. 

In  Diagram  No.  1  it  will  be  seen  that  the  lower  metal  has 

been  always  nearest  the  average  line,  gold  from  1860  to  1873, 
and  silver  since  1873.  It  is  as  though  corn  and  wheat  were 
both  available  for  food.  If  we  should  abandon  corn,  we  can 
easily  see  that  the  supply  of  bread  would  be  more  unstable. 
If  we  use  both,  when  one  chances  to  be  scarce  the  other 
would  come  to  the  relief  of  the  hungry. 

The  fact  that  but  one  metal  could  be  the  standard  at  one 
time,  together  with  the  convenience  of  some  s^'stem  of  inter- 
national coinage,  weights  and  measures  was  the  ostensible 
cause  of  a  conference  in  Paris,  in  1867,  composed  chielly  of 
commissioners  at  the  exhibition.  The  French  gold  coins 
were  decided  upon  as  the  basis  of  such  recommended  coinage, 
and  it  was  further  resolved  to  recommend  the  abandonment 
of  the  double  standard.  Whether  such  was  the  design  or 
not,  the  inevitable  consequence  of  throwing  all  the  duty 
upon  one  metal  heretofore  performed  by  two,  could  not  but 
enhance  its  value,  and  the  value  of  every  coin  contract  rep- 
resenting a  fixed  weight  of  metal.  Great  Britain  fell  in  with 
the  scheme  at  once,  as  did  also  Germany,  both  being  largely 
creditor  nations.  There  was  some  sense  in  their  action,  but 
in  the  case  of  the  United  States,  it  was  far  otherwise.  We, 
in  debt  to  an  enormous  amount  both  government  and  pri- 
vate, mostly  incurred  in  a  depreciated  paper,  had  just  passed 
an  act  promising  coin  (either  gold  or  silver)  for  the  whole  of 
it.  We  had  followed  that  by  promising  coin  of  present 
standard  value,  designed,  evidently,  to  be  construed  to  mean 
present  standard  weight,  and  now  to  engage  to  pay  gold  only 
would  be  an  act  of  folly  fit  only  for  a  sequence  to  what  had 
preceded.     Bj^  observing  the  diagram  lines  representing  the 


168  AMERICAN  FINANCES. 

production  of  ^old  and  silver,  it  will  be  seen  that  the  supply 
of.  gold  was  falling  off,  while  that  of  silver  was  increasing 
rapidly  at  that  time.  Whatever  may  have  been  the  motive^ 
Congress  had  done  all  it  oould  for  the  bondholders  in  the 
matter  of  depreciating  and  appreciating  the  paper,  and 
changing  the  contract  from  paper  to  coin.  This  would  now 
appreciate  the  promised  coin.  It  would  be  equivalent  to 
increasing  the  weight  of  coin,  and  would  be  a  fraud  not  so 
easily  understood  and  resisted  by  the  unfortunate  tax-payers 
of  the  country. 

This  was  purely  a  creditor's  move.  Whatever  currency 
chances  to  be  cheap,  and  enables  debtors  to  pay  their  obliga- 
tions with  anything  like  equit3\  the  creditor  portion  of  the 
community  holding  the  reins  of  government  always  attempt 
to  demonetize.  When  the  gold  mines  were  discovered  in 
California,  they  tried  to  demonetize  gold,  Whei^  greenbacks 
were  cheapest,  they  tried  to  demonetize  them,  and  now  that 
silver  was  cheaper  than  gold,  they  try  to  demonetize  that, 
though  both  were  advancing  in  value. 

§  132.  The  act  of  June  20,  1874,  relieves  the  National 
Banks  from  holding  any  reserves  on  account  of  their  circula- 
tion, and  provides  that  they  shall  keep  a  5  per  cent,  redemp- 
tion fund  in  the  hands  of  the  Secretary  of  the  Treasury, 
which  should  constitute  a  part  of  their  deposit  reserves.  The 
act  also  fixes  the  amount  of  the  United  States  notes  at  S382,- 
000,000.  Up  to  this  time  they  had  been  able  to  keep  their 
reserves  in  certificates  drawing  6  per  cent,  interest.  As  they 
were  now  prohibited  from  drawing  more  than  3  i)er  cent.,  at 
their  dictation  Congress  released  them  from  holding  any 
reserves  whatever  on  account  of  circulation. 

§  133.  The  next  act  of  importance  was  the  well-known 
resumption  act  of  January  14,  1875.  The  bill  was  gagged 
through  the  House  under  the  operation  of  the  previous 
question,  suppressing  all  debate  and  amendment. 

The  first  section  provides  for  the  r-edemption  of  the  frac- 
tional currency  in  silver  as  rapidly  as  possible. 

Section  2  repeals  the  law  making  a  charge  for  coining  gold. 

Section  3  repeals  all  limitation  upon  the  amount  or  distri- 
bution of  National  Bank  currency,  and  makes  banking  free 


FINANCIAL  LEGISLATION  SINCE  THE  WAR.       160 

to  all  bondholders.  This  section  also  provides  for  retiring  the 
greenbacks  to  the  amount  of  80  per  cent:  of  the  increase  of 
bank  notes,  until  only  $300,000,000  remain  out.  It  further 
provides  that  on  and  after  January  1,  1879,  the  Secretary  of 
the  Treasury  shall  redeem  the  greenbacks  in  coin  at  the  Sub- 
Treasiirij  in  New  York,  only  in  sums  of  not  less  than  fifty 
dollars.  For  this  purpose  he  might  use  any  surplus  funds, 
and  sell  any  kind  of  bonds  authorized  by  the  act  of  July  14, 
1870. 

§  134.  The  resolution  of  July  22,  1876,  is  collateral  to  this 
act. 

Section  1  provides  for  the  issue  of  $10,000,000  of  silver 
coin  in  exchange  for  greenbacks. 

Section  2  demonetizes  the  trade  dollar,  and  authorizes  the 
Secretary  to  limit  its  coinage  to  the  export  demand. 

Section  3  provides  for  further  issues  of  silver,  so  that  the 
aggregate  fractional  currency  may  be  brought  up  to  $50,- 
000,000. 

Section  4  authorizes  the  purchase  of  silver  bullion  for  the 
purpose  of  such  fractional  coinage.  Under  these  acts  the 
scheme  was  to  sell  5  per  cent,  bonds  for  silver,  and  take  up 
the  fractional  currency.  This  would  take  over  $40,000,000 
of  bonds,  which  would  be  an  annual  interest  charge  of 
$2,000,000  upon  the  people.  They  would  then  have  the 
trouble  of  carrying  nearly  an  ounce  of  bullion  to  every 
dollar  of  change,  and  have  something  that  they  could  not 
conveniently  send  by  mail.  Should  anyone  lose  or  destroy 
a  dollar  of  fractional  currency,  the  Government  would  gain 
the  loss.  By  this  arrangement,  should  the  silver  be  lost,  the 
individual  would  not  only  lose  the  same,  but  also  have  the 
pleasure  of  assisting  in  paying  interest  on  the  bond  at  the 
rate  of  five  cents  per  year,  and  eventually  in  paying  for  the 
bullion.  Suppose  the  bond  should  run  twenty  years.  By 
the  first  operation  the  individual  loses  $1;  the  Government 
gains  $1;  the  nation  and  bondholder  neither  gain  or  lose. 
By  the  second  method  the  individual  loses  his  money  ($1); 
the  Government  pays  interest,  $1,  and  principal,  $1.  The 
individual  loses  $1,  the  nation  $2,  making  $3  total,  to  offset 
which  the  Government  receives  the  original  loan  which  gave 


170  AMERICAN  FINANCES. 

rise  to"  the  paper  currency  at  first.  The  loss  to  the  individual 
is  the  same  in  both  cases;  the  loss  to  the  nation  is  nothiug 
in  the  case  of  the  paper,  but  is  one  dollar  of  usury  and  one  of 
bullion  in  the  other. 

The  resumption  scheme  was  cunningly  arranged.  The 
language  was  so  ambiguous  that  it  might  be  construed  either 
to  retire  or  reissue  the  notes  when  redeemed.  When  ques- 
tioned on  this  point,  John  Sherman,  who  was  in  charge  of 
the  bill,  stated  that  it  was  purposely  so  left,  and  refused  to 
give  a  construction  of  his  own  on  this  language.  By  redeem- 
ing in  sums  of  $50  at  one  point  only,  the  restriction  would 
amount  to  a  slight  premium,  and  would  prevent  the  coin 
from  actually  coming  into  the  hands  of  the  people,  and 
would  amount  to  nominal  resumption  only.  This  slight 
premium  would  operate  exactl}'  as  the  slight  difference  be- 
tween gold  and  silver  previous  to  1837,  and  prevent  its  actual 
circulation.  This  would  enable  the  Secretary,  importers,  and 
bankers  to  keep  it  all  within  its  former  uses.  The  banks 
could  by  this  arrangement  substitute  their  paper  for  the 
entire  greenback  circulation.  They  could  collect  from  the 
people  on  deposit  §50,000  of  greenbacks,  present  them  for 
redemption,  and  take  a  5  per  cent,  bond  instead  of  coin.  The 
bonds  they  could  leave  for  currency,  providing  out  of  their 
own  funds  for  the  10  per  cent,  margin  and  reserves.  Had 
the  law  declared  that,  after  January  1,  1S79,  the  Secretary 
might  fund  all  the  outstanding  greenbacks  into  5  per  cent, 
bonds  of  1870,  it  would  havn  been  exactly  the  same  thing. 
Such  a  law  would  probably  have  been  defeated.  By  the 
farce  of  redemption  in  coin,  and  selling  bonds  to  buy  the 
coin  back,  the  same  thing  could  be  accomplished.  The  pro- 
vision making  banking  free  to  all  bondholders,  and  removing 
the  limit  to  their  issues,  i^laced  the  power  in  the  hands  of  the 
banks  to  inflate  the  currency  at  their  pleasure.  With  the 
prospect  of  resumption,  it  would  not  do  to  proceed  at  once 
in  tint  direction,  for  should  a  run  of  gold  occui*,  they  would 
be  unable  to  meet  the  demand,  and  as  the  Government 
retired  the  greenbacks,  they  would  have  to  fail.  This  kepi 
them  in  check  for  the  time  being. 

§  135.  The  contraction  at  the  close  of  the  war  bore  its; 


FINANCIAL  LEGISLATION  SINCE  THE  WAR,      171 

legitimate  fruit  in  the  panic  of  1873.  'By  the  diagram  it  will 
be  seen  that  the  Funding  act  of  1870  was  passed  when  gold 
was  plenty  and  cheap  in  this  country.  Reducing  the  rate  of 
interest  on  bonds  at  first  checked  their  export,  and  increased 
the  export  of  gold.  This  raised  the  value  of  gold,  and  then 
the  bonds  began  to  go  again.  This  resulted  in  a  tremendous 
importation  of  foreign  goods,  which  operated  to  ofl'set  the 
rise  of  loans  and  discounts  —  the  increased  currency  being 
met  by  an  added  supply  of  goods.  The  export  of  bonds  here 
again  disturbed  all  the  ordinary  laws  of  trade.  Prices  did 
not  follow  the  expansion,  but  remained  nearly  stationary. 
The  situation  in  the  banks,  September  12,  1873,  was  as  fol- 
lows: 

1873. 


•^^ 

Deposits ^610.000,000 

Circulation 340,300,000 

Legal  tenders 92,400,000 

Loans  and  Discounts 944,200,000 

This  panic  was  not  a  run  for  redemption  of  bank  notes  like 
that  of  1857.  The  notes  were  made  about  the  same  value  as 
the  greenbacks,  by  law,  and  it  was  purely  a  speculative  panic 
produced  by  a  collapse  of  credits.  Private  credit  had  been 
expanded,  and  the  fall  of  one  business  firm  knocked  down 
another.  We  find  that  from  1869  to  1875  there  was  no  con- 
traction of  currency  or  discounts,  but,  rather,  a  slight  expan- 
sion. Business  failures  now  threw  large  quantities  of  goods 
upon  the  markets  at  forced  sales.  This  depressed  prices,  and 
also  caused  imports  to  rapidly  decline.  The  vast  amount 
of  liabilities  which  now  were  to  be  liquidated,  came  by  substi- 
tuting credit,  as  the  currency  disappeared  after  the  close  of 
the  war.  Hugh  McCulloch's  theory  was  that  the  people 
would  build  a  credit  fabric  upon  the  currency  in  any  event. 
If  that  were  true,  why  had  they  not  done  so  already?  We 
had  expansion  from  1860  to  1864  to  an  enormous  amount. 
Heretofore  every  such  expansion  had  been  followed  by  credit 


172  AMERICAN  FINANCES. 

operations.  At  the  close  of  the  war,  however,  bu.siness  was 
mostly  done  for  cash.  As  the  cash  disapjjeared,  people  had 
to  resort  to  credits  or  curtail  their  business. 

§  136.  The  stagnation  of  business  folloAving  1873  is  indi- 
cated by  the  fall  of  the  lines  of  imports  and  exports.  The 
banks  were  not  threatened  with  a  run  for  redemption  of  their 
notes,  as  in  case  of  a  panic  on  the  specie  basis.  Neither 
their  notes,  nor  the  greenbacks  in  which  they  were  redeem- 
able, could  be  exported.  Domestic  creditors  would  i^ceive 
either,  and  foreign  creditors  neither.  Under  such  circum- 
stances there  could  be  no  conversion.  This  shows  another 
advantage  of  a  system  of  domestic  currency.  In  1874  mer- 
chandise was  shipped  in  excess  of  imports,  and  the  difference 
has  increased  rapidly  ever  since  1875,  until,  in  1879,  the  dif- 
ference to  our  credit  was  !?282,216,000.  In  1875  more  coin 
and  less  merchandise  was  exported,  but  it  will  be  seen  that  we 
sent  enough  to  pay  for  all  we  imported,  and  the  coin  paid 
old  debt.  The  bank  expansion  about  neutralized  the  panic, 
and  we  were  now  where,  by  making  greenbacks  receivable 
for  imposts  they  would  at  once  be,  at  par.  This  is  under- 
stood Avhen  we  consider  that  their  real  value  in  merchandise 
was  then  as  great  as  was  that  of  coin  in  1866  and  1870.  We 
were  paying  for  our  imports  in  goods,  which  would  prevent 
a  demand  for  coin  for  export  purposes.  We  would  in  that 
way  cheapen  gold  by  reducing  the  demand  for  duties.  Such 
a  law  would  have  put  us  at  par  at  once,  and  avoided  all  the 
necessity  for  further  contraction  in  order  to  resume.  Instead 
of  this,  the  Resumption  act  was  passed.  The  lines  of  the 
diagram  show  the  effect.  Currency,  and  loans  and  discounts 
were  rapidily  contracted  by  the  banks.  They  rode  through 
the  financial  storm  of  1873  under  full  sail,  ballasted  by  the 
greenbacks.  During  that  panic  they  had  aided  the  business 
men  by  expansion,  but  now,  when  everything  was  serene, 
they  were  compelled  to  shorten  sail  to  meet  a  future  reduc- 
tion of  ballast  to  the  amount  of  gold  that  might  be  available 
in  1879.  This  rapidly  reduced  prices,  and  revived  the  pres- 
sure ui>on  business  men.     The  effect  may  be  seen  from  the 


FINANCIAL  LEbfl^LATIUJS  ;sll\CE  THE   WAR.      17: 


following  table  of  bankruptcy,  from  Dunn  Barlow's  reports 
as  found  in  the  American  Almanac  for  1880: 

Aggregate    Number    and   Amount   of   Failures    in    thi 
United  States  for  Twenty-one  Years— 1857-1878. 

(Compiled  from  Hunt's  Merchant's  Magazine,  and  Dun,  Barlow  &  Co.'s  Circulars.) 


Year No.    Liabilities.    Year 


1857. 
1858. 
1859. 
1S60. 
1861. 
1802. 
1868. 
1864. 
1865. 
1866. 
1867. 


4,982 
4,225' 
3,913 
3,676 
6,993 
*  1,6.52 
*495 
*520 
*530 
1,505 
2.780 
1868 1  2,608 


8291,750,000 

95,749,000 

64,394,000 

79,807,000 

207.210.000 

23,049,000 

7,899,000 

8,.579,000 

17,625,000 

53,783,000 

96,666,000 

63,694.0001  i 


1869. 
1870. 
1S71. 
1872. 
1873. 
1874. 
1875 . 
1876. 
1877. 
1878. 
1879. 


No. 


2,799 
3,551 
2.915 
4,069 
5.183 
5.^30 
7,740 
9.092 
8,872 
10,478 
t5,320 


Liabilities. 


75.054,00f 

88,242 ,00C 

85,252.00C 

121, 03,6, OOC 

228.499.000 

155,239,000 

201 .060,000 

191,117,000 

190.669,000 

234.383.132 

81,054,940 


♦Northern  States  only.  tNine  months  only. 

We  see  from  this  table  that  the  amount  involved  in  the 
item  of  business  failures  alone  amounts  to  $1,576,552,072 
in  less  than  ten  years. 

Add  to  this  the  mortgage  sales  of  real  estate  and  personal 
property,  such  as  houses,  lands,  railroads,  etc.,'  and  the  im- 
\neuse  amount  of  property  sold  at  a  sacrifice  by  solvent 
parties  to  save  themselves,  and  some  idea  may  be  formed  of 
the  ruin  consequent  upon  coiitracticn,  and  appreciation  of 
the  standard  of  our  money. 

§  137.  These  terrible  consequences  at  last  aroused  the 
people,  and  a  political  movement  among  the  masses  began 
to  take  definite  form  in  the  shape  of  a  new  party  demanding 
a  halt  in  these  unjust  proceedings.  Agitation  and  discussion 
began  to  bring  to  knowledge  some  of  the  frauds  embodied  in 
the  acts  of  Congress  since  the  war  commenced,  and  the  tide 
began  to  turn  in  the  summer  of  1876. 

The  defenders  of  the  people  in  Congress  rapidly  gained 
strength,  and  the  result  has  been  the  passage  of  the  act  of 
February  28  and  May  31,  1878,  both  to  some  extent  being 
victories  for  the  plundered  tax-payers  and  debtors  of  the 
country, 

§  1S8.  Section  1  of  the  act  of  February,  28,  1878,  provides 
for  the  coinage  of  "  silver  dollars  of  the  standard  of  412^ 


174  AMERICAN  FINANCES. 

grains  as  provided  by  the  act  of  January  18,  1837,"  to  the 
amount  of  not  less  than  $2,000,000,  nor  more  than  $4,000,000 
per  month.  The  Secretary  was  authorized  to  buy  the  neces- 
sary bullion,  and  account  for  the  gain  to  the  Treasury  as 
provided  in  the  case  of  the  fractional  coinage.  This  was  but 
a  partial  concession,  and  operates  to  make  silver  dolhirs  a 
subsidiary  coinage,  and  to  maintain  their  value  above  that  o£ 
the  bullion.  It  is  not,  however,  a  restoration  of  silver.  Be- 
fore silver  was  demonetized,  an3'one  having  silver  bullion 
could  have  it  coined  the  same  as  gold;  but  such  is  not  now 
the  case,  and  silver  is  no  more  remonetized  than  before. 
There  is  simply  an  increase  of  subsidiary  coinage,  which,  of 
course,  has  some  effect  upon  the  value  of  money. 

Section  2  relates  to  a  monetaiy  commission  to  confer  witb 
other  nations  with  regard  to  a  bi-metallic  standard,  and  inter- 
national money.  This  revived  the  scheme  to  unify  the  mone- 
tary machinerj  of  the  world,  and  would  practically  have  con- 
solidated the  money  power  of  all  civilized  nations.  Such  an 
international  coinage  for  purely  international  commerce 
might  be  of  utility.  Should  Congress  attempt,  however,  to 
establish  such  money  as  a  domestic  currency,  it  would  at 
once  deprive  itself  of  any  power  to  regulate  its  value.  All 
changes  of  value  produced  by  foreign  disturbances  would  be 
felt  here,  and  Congress  would  be  powerless  to  jjrevent  any 
injustice  that  might  thus  arise.  It  is  a  cunning  plan  to  rob 
the  people  of  their  power  to  protect  themselves  from  the 
encroachments  of  a  large  and  powerful  creditor  class. 

Section  3  provides  for  silver  certificates  to  be  issued  for 
silver  coin  and  receivable  for  all  public  dues,  including  duties, 
the  silver  to  be  retained  on  deposit,  dollar  for  dollar,  till  called 
for.  This  is  exactly  the  plan  upon  which  the  Bank  of  Eng- 
land notes  are  issued  in  excess  of  £14.000,000.  The  paper 
becomes  an  exact  substitute  for  the  coin,  while  it  is  more 
convenient.  Hoarding  the  silver  will,  of  cour-e,  prevent 
any  inflation.  The  bill  was  vetoed  by  President  H;iyes,  and 
passed  over  his  veto.  His  plea  was  chiefly  hat  silver  had 
depreciated,  and  to  pay  it  to  the  bondholder  would  be  wrong. 
The  fact  is  that  silver  and  gold  have  both  appreciated,  and 
we  now  pay  more  value  than  the  bond  calls  for  in  either. 


FINANCIAL  LEGISLATION  SINCE  THE  WAR.      175 

When  the  act  of  1870  was  passed,  promising  coin  of  "  present 
standard  vahie,"  gold  coin  had  a  purchasing  power  of  .77,  and 
silver  of  .78.5,  taking  the  average  for  50  years  at  100.  Gold 
was,  in  1879,  at  1.16,  and  silver  at  1.06,  so  that,  according  to 
contract .  Congress  should  reduce  gold  dollars  to  17.1  grains, 
and  silver  to  305i  grains.  Instead  of  depreciating,  silver  has 
appreciated  25  per  cent,  and  gold  over  50  per  cent.  The  man 
w^iio  prates  about  depreciation  of  silver  under  such  circum- 
stances, is  either  iafnorant,  or  a  rascal,  or  both.  Of  the  two,  silver 
has  been  the  more  honest  metal,  for  it  has  appreciated  the  least. 
§  139.  The  act  of  May  31,  1878,  prohibits  retiring  any 
more  of  the  greenbacks,  and  provides  that  they  shall  be  reissued. 
Until  repealed,  this  makes  them  a  permanent  circulation. 
This  concession  became  a  necessity  to  protect  the  banks. 
Had  the  original  intention  of  retiring  been  carried  out,  they 
would  have  been  left  without  adequate  basis  for  their  cur- 
rency, and  when  resumption  came  a  run  would  have  set  in. 
The  act  of  February  25,  1862,  specifies  that  the  greenbacks 
may  be  reissued  from  time  to  time,  as  the  exigences  of  the 
public  interests  may  require:  and  the  succeeding  acts  author- 
izi]ig  their  issue  repeat  the  same  language. 

The  act  of  June  20, 1874,  fixes  the  limit  at  1380,000,000,  which 
is  the  amount  that  can  now  be  lawfully  issued  without  further 
legislation.  But  Congress  can  at  any  time  do  whatever  is 
necessary  and  proper  to  coin  money  and  regulate  its  value, 
and  no  legislation  of  Cvmgresscan  be  binding  which  attempts 
to  fix  limits  to  the  exercise  of  the  constitutional  powers  of 
Congiess.  In  speaking  of  this  act,  Mr.  Sherman,  in  his 
report  of  December,  1879,  page  10,  says: 

"  This  act  must  be  construed  in  connection  witli  the  provision  of 
the  Constitution  that  'no  money  shall  be  drawn  from  the  Treasury 
but  in  consequence  of  ap])ropriatious  made  by  law.'  The  reserve 
fund  created  by  the  Kesumption  act  could  not,  without  further 
legislcition,  be  applied  to  the  payment  of  current  appropriations." 

Thus  it  is  seen  that  the  Secretary  intends  to  defeat  the  will 
of  Congress  by  hoarding  the  currency.  He  has  power  to  sell 
bonds  for  coin  at  par,  and  now  receives  greenbacks  the  same 
as  coin  on  such  sales.  These,  he  says,  cannot  be  paid  out  on 
appropriations. 


176  AMERICAN  FINANCES. 

§  140.  He  is  also,  by  the  act  of  February  26,  1879,  author- 
ized to  issue  certificates  drawing  4  per  cent,  for  acreenbacks, 
in  any  quantity,  and  the  greenbacks  are  set  aside  as  a  special 
fund,  and  cannot  be  reissued  except  under  certain  circum- 
stances. So  that  as  long  as  the  Secretary  can  sell  bonds  at 
par,  or  borrow  at  4  per  cent.,  he  can  contract  the  currency  in 
violation  of  the  expressed  will  of  Congress.  It  may  be  sup- 
posed that  as  soon  as  some  contraction  has  taken  place,  a 
demand  for  money  in  business  will  prevent  more  4  per  cents 
from  being  taken.  Nothing  could  be  further  from  the  truth. 
Contraction  produces  falling  prices  ;  falling  prices  make 
business  investments  less  to  be  desired,  and  capitalists  greedily 
suck  up  more  bonds.  The  act  is  a  cunning  device  to  defeat 
the  act  prohibiting  the  retiring  of  the  greenbacks.  It  sub- 
stantially provides  that  the  Secretary  may  fund  greenbacks 
and  hoard  them  in  the  Treasury  as  a  special  fund  to  pay 
bonds  of  5  per  cent,  and  upward.  He  can  under  this  law 
retire  every  greenback  in  circulation  at  his  pleasure. 

Money  in  the  Treasury  is  as  much  retired  as  though  burned, 
so  far  as  its  effect  upon  business  is  concerned.  The  following 
table  gives  some  idea  of  the  hoarding  in  the  Treasury  from 
1876  to  1879: 

CASH   IN"   THE   TREASURY. 

July  1,  1876 ^^149,909,377 

July  1,  1877 214,887,645 

July  1,  1878 286,591,453 

July  1,  1879 386^832,588 

The  contraction  by  hoarding  in  three  years  was  $236,923,- 
211.  From  this  deduct  $30,370,000  certificates  of  deposit 
issued  as  a  substitute  for  money  to  the  bank  for  clearing 
house  operations,  and  we  have  an  actual  contraction  of 
$206,553,211.  Another  false  pretense  appears  here.  For  all 
of  this  increase  of  cash  on  hand  there  have  been  issued  bonds 
bearing  interest,  and,  this,  as  has  been  explained,  should  not 
be  deducted  from  the  outstanding  debt.  The  pretended 
decrease  by  so  doing  has  been  $72,232,088,  the  real  increase 
has  been  $169,175,463  in  three  years. 

The  game  can  be  profitably  played  by  the  banks  thus:  Ex- 


FINANCIAL  LEGISLATION  SINCE  THE  WAR.      177 

change  bank  currency  for  greenbacks,  and  those  for  4  per 
cents,  and  with  4  per  cents  procure  more  currency  and 
repeat  the  operation.  The  section  in  the  Bank  act  prohibit- 
ing the  hypothecating  of  bank  currency  to  increase  capital 
stock  was  not  designed  to  be  enforced,  and  is  easily  evaded. 

§  141.  We  have  now  resumed  upon  the  paper  basis,  and  are 
where  Great  Britain  was  at  the  close  of  the  first  period 
of  contraction.  Below  is  given  a  table  showing  the  similarity 
of  the  process.  By  comparing  it  with  the  table  on  page  70 
we  can  understand  how  much  more  contraction  would  be 

required  to  actually  resume  : 
^  Paper  Gold 

Currency.  Premium. 

Jan.  1,  1862,  Suspension $202.000,000 . .       None. 

Inflation 746,318,000.. 

Jan.  1,  1865,  Eug.  of  Inflation. . .  948,918,000.-102  per  cent. 

Contraction 288,437,000 . . 

Jan.  1,  1879,  at  par 660,481,000 . .       None. 

In  order  to  maintain  resumption,  the  Secretary  of  the 
Treasury  has  ordered  the  law  to  be  disregarded,  and  green- 
backs to  be  received  for  customs  and  all  other  purposes. 
*"No  distinction  has  been  made  since  tliat  time  (January  1, 
1879)  between  coin  and  United  States  notes  in  the  collection  of 
duties  or  in  the  payment  of  the  principal  or  interest  of  the  public 
debt.  ****** 

There  has  been,  however,  but  little  demand  for  coin,  and  United 
States  notes  and  the  circulating  notes  of  National  Banks  have  been 
received  and  paid  out  at  par  witli  coin  in  all  business  transactions, 
public  or  private,  in  all  parts  of  the  country." 

This  he  admits  he  is  forced  to  do  to  maintain  resumption. 

X  "  It  has  now  definitely  assumed  to  pay  these  notes  in  coin,  and 
this  necessarily  implies  the  receipt  of  these  notes  as  coin.  To 
refuse  them  is  only  to  invite  their  presentation  for  coin." 

This  adds  a  use  to  them,  and  removes  it  from  coin.  We 
have  seen  the  effect  in  the  case  of  the  demand  notes.  This, 
of  course,  has  a  tendency  to  enhance  the  value  of  greea- 
backs.  On  the  other  hand,  the  value  of  gold  has  been 
changed  by  the  following  change  in  supply. 

Supply  of  material  serving  the  purpose  of  gold  in  1879: 

Actual  coin  in  the  country  and  coin  certificates,  less  coin 

*  Sec.  Report,  1879,  Dec.  1  p.  9. 
t  Sec.  Eeport,  Dec,  1879,  p.  13. 

12 


178  AMERICAN  FINANCE  IS. 

hoarded  in  United  States  Treasury  in  1880.  There  has  been 
added  to  this  all  the  greenbacks  in  circulation,  and  an  import 
of  $74,000,000  of  bullion,  together  with  the  domestic  product, 
and  a  disbursement  from  the  Treasury  of  hoarded  money  ta 
the  amount  of  $185,743,06(3.  To  this  we  are  safe  in  adding 
the  National  Bauk  notes  which  the  Secretary  receives  the 
same  as  coin  because  "equal  to  coin."  From  this  deduct 
the  silver  bulliou,  imported  and  produced,  and  we  obtain 
some  idea  of  the  increased  supply  of  "  coin  "  in  the  market. 
The  result  has  been  a  depreciation  of  both  coin  and  paper 
of  about  16  per  cent.  With  the  coin,  the  paper  money  of 
the  country  is  at  par,  but  neitl^er  are  at  the  par  of  a  year 
ago,  in  exchange  for  merchandise.  With  our  largely-increased 
imj>orts  of  merchandise  it  is  safe  to  assume  that,  upon  an 
enforcement  of  the  law  and  refusal  of  aoythiug  but  coin  and 
coin  certificates  for  duties,  there  would  at  oncu  be  a  premium 
of  at  least  10  per  cent,  on  coin. 

The  situation  is  now  critical.  Any  further  inflation  will 
raise  prices,  turn  the  balances  of  trade,  increase  imports,, 
and  soon  make  a  panic.  Any  further  contraction,  or  any 
effort  to  actually  resume  or  retire  any  of  the  greenbacks 
will  be  sure  to  result  in  disaster. 

§  142.  The  situation  in  the  banks,  June  30,  1880,  was  as 
follows  : 

1880. 


in 


^ia. 


] 


I  >"po.sits .^;4.402.6;'6 

Circulation 31-4.505.427 

Coin  )  j    4f),484,r>45 

Legal  Tender  f |    61.4S0.7i7 

Coi'i  Certificates  )  j    50.021.060 

Loans  and  Discounts  f (  991.143,126 

We  have  here  placed  the  coin  (black  block)  and  green- 
baclcs  (shaded  block)  as  basis.  The  coin  certificates  are 
placed  with  the  loans  and  discounts,  for,  like  theni,  they  are 
assets,  not  basis.  They  cannot  be  used  to  redeem  a  bank 
note,  nor  pay  a  depositor. 


FINANCIAL  LEGISLATION  SINCE  THE  WAR.      179 

The  deposits  have  evidently  been  enormously  compounded, 
and  are  in  a  dangerous  condition.  Demonetize  the  green- 
back, and  it  at  once  becomes  assets,  like  coin  certificates,  and 
the  consequences  are  easily  predicted. 

The  Comptroller  of  the  Currency,  in  his  report  for  Decem- 
ber, 1879,  makes  the  following  estimate  of  coin  and  paper 
currency  in  the  country: 

Treasury  notes  (greenbacks) $346,681,016 

National  Bank  notes 337,181,1:18 

Gold  in  United  States  Treasury,  less  certificates      157,960,193 

Silver  in  United  States  Treasury 50,078,620 

Coin  in  banks  (October  2) 42,173,731 

Estimated  coin  held  by  the  people 231,478,515 

$1,165,553,493 
Of  this  amount,  the  Treasury  notes,  bank  notes,  and  about 
$70,000,000  of  silver,  constitute  the  currency  at  present. 
This  amounts  to  $753,862,434.  Suppose  we  actually  resume, 
and  put  the  $231,478,515  of  coin  into  actual  use.  Prices  are 
now  at  46.25,  a  proportionate  increase  would  bring  them  up 
to  about  60.47.  This  rise  of  prices  would  be  still  greater 
should  the  Treasury  pay  out  any  more  of  its  coin.  This 
would  be  still  further  enhanced  by  any  increase  of  loans  and 
discounts,  and  the  inflation  would  surely  breed  an  export  of 
coin  and  an  old-fashioned  panic. 

Any  attempt  to  demonetize  the  greenback  would  result 
disastrously,  unless  the  Government  was  prepared  to  redeem 
every  dollar  in  coin.  Immediately  the  legal  tender  quality 
is  removed,  they  would  no  longer  serve  as  bank  reserves. 
The  banks  would  at  once  create  a  demand  for  coin  to  take 
their  place.  That  would  increase  the  value  of  coin,  and 
either  result  in  suspension,  or  an  extensive  substiLution  of 
coin  for  greenbacks.  If  the  greenbacks  vere  not  retired  they 
would  increase  the  supply  of  paper  and  widen  the  diiference 
between  puper  and  coin,  and  the  drain  could  only  be  stopped 
by  contraction.  To  remain  as  we  are  is  equally  dangerous. 
The  Government  -issues  its  legal  tenders,  and  by  redeeming 
in  coin  they  operate  both  as  notes  and  as  money;  and  we 
have  compound  inflation,  the  United  States  banking  upon 


180  AMERICAN  FINANCES. 

coin,  and  the  banks  upon  the  Government  issues.  Whenever 
the  run  on  the  Government  sets  in,  there  must  be  compound 
contraction.  There  can  be  but  one  consequence.  The  banks 
will  inflate  the  currency  until  the  panic  sets  in.  and  then 
leave  the  Government  to  redeem  their  issues  and  preserve  the 
currencj'  from  collapse.  They  have  their  option.  They 
may  either  inflate  the  currency,  and.  by  reaping  a  rich  har- 
vest of  interest  on  what  they  owe,  profit  by  all  the  advan- 
tages of  good  times.  Or  they  may  contract  the  currency,  and 
by  compelling  failures,  turn  their  available  means  into  prop- 
erty at  very  low  prices;  or  they  may  turn  key  on  the  coin  in 
their  vaults  and  compel  the  Government  to  market  their 
bonds  to  the  bankers  at  their  ovm  prices,  in  order  to  raise 
funds  with  which  to  redeem  the  bank  notes. 

§  143.  In  order  to  obtain  a  comprhensive  view  of  the  whole 
scheme  since  the  commencement  of  the  war.  we  present 
below  a  digest  of  the  movements  on  the  part  of  the  Govern- 
ment and  money  power. 

At  the  outset  the  banks  had  complete  control  of  the  paper 
currency  under  State  authority,  and  the  Government,  by  the 
compromise  efifected  during  the  contest  with  the  United 
States  Bank,  was  limited  to  coining  metals  and  managing 
its  own  finances  through  the  Sub-Treasuries,  independent  of 
the  banks. 

The  scheme  commences  at  the  outbreak  of  the  war,  in  1861. 

The  movements  were  as  follows  : 

On  The  Part  of  the 


On  the  Part  of  the  Govern 

MENT. 


Banks   and   Money 
Changers. 
Infiation  Period. 


Resorted  to  borrowing  instead  of 
taxation.  Alhwed  the  Secretary  to 
deposit  Government  funds  with  the 
banks. 

Issued  circulating  notes  of  its  own. 
Chase  refuses  to  borrow  bank  notes. 
Government  suspends.  House  passes 
a  full  legal  tender  bill  to  issue  ^150,- 
000,000    of    paper    money.       Senate 


Agree  to  loan  $150- 
000,000.  Attempt  to 
lend  their  notes  to  the 
Government. 

Refuse  to  receive 
Government  notes  and 
go  into  suspension. 

Bankers   lobbv   the 


amends  the  bill.     Agrees  to  pay  coin    Senate 


FINANCIAL  LEGISLATION  SINCE  THE  WAR.       181 


interest  anrl  repudiates  its  money  for 
import  duties,  limits  the  sale  of  bonds 
to  market  price,  preventing  any  large 
sales,  and  exempts  bonds  from  State 
taxation.  Taxes  everything  but  bank 
notes  and  bonds. 

Makes  the  demand  note  a  full  legal 
tender,  authorizes  $150,000,000  more 
of  greenljacks,  an  indefinite  amount 
of  postal  currency,  and  prohibits 
private  currency  below  $1.  Author- 
ized sale  of  5-20  bonds  on  such  terms 
as  the  Secretary  might  think  most 
beneficial. 

Senate  refuses  to  entertain  a  bill  to 
tax  bank  notes.  House  refuses  to 
make  greenbacks  full  legal  tender. 

Passes  the  National  Bank  act, 
authorizing  1300,000,000  bank  notes, 
also  10-40  bonds  payable  in  coin,  also 
$150,000,000  greenbacks  and  $400,- 
000,000  of  interest  bearing  legal 
tenders  at  the  option  of  the  Secretary. 
Repealed  restriction  to  market  value 
on  sales  of  5-20.  Levies  a  small  tax 
on  all  bank  currency.  Secretary  sells 
5-20  bonds  so  readilj^  that  that  sub- 
scriptions exceed  the  amount  author- 
ized. Secretary  makes  interest-bear- 
ing notes  a  legal  tender. 

Authorizes  the  manufacture  of 
paper  gold  (coin  certificates)  and  sale 
of  the  gold  in  the  Treasury. 

Congress  disputes  as  to  payment  of 
5.20  bonds  in  coin.  Refuses  to  insert 
the  words  "in  coin"  in  the  act  of 
June  30,  1864,  and  repeals  authority 
to  issue  10.40s  of  1863.  Attempts  to 
forestall  future  legislation  in  the  mat- 
ter of  currency. 


Unload  their  bonds. 

Inflate  their  currency, 
using  legal  tenders  as 
a  basis. 


Secretary  makes  no 
effort  to  sell,  upon  pre- 
tense that  he  was  re- 
stricted to  market 
price,  and  continues  to 
inflate  and  depreciate 
the  currency. 

Banks  continue  to 
flate  their  currency  on 
greenback  basis. 

Accept  and  circulate 
full  legal  tender  paper 
at  par  with  gold. 


Load  up  with  bonds 
at  about  fifty  cents  in 
coin.  Hold  interest- 
bearing  notes  as  re- 
serves. 


182 


AMERICAN  FINANCES. 


Authorizes  borrowing  National 
Bank  notes  at  6  per  cent,  interest. 
Exempts  National  Bank  notes  from 
State  tax  by  construing  them  to  be 
Government  obligations.  Levies  a 
prohibitory  tax  of  10  per  cent,  on 
State  bank  circulation.  Authorizes 
$400,000,000  bonds  or  7.30  notes. 
Secretary  issues  nearly  all  in  notes. 

Congress  still  refuses  to  settle  the 
question  of  payment  of  the  5-20  bonds 
in  coin,  though  frequently  urged  to 
do  so  by  the  Secretary  of  the  Treasury. 
Changes  the  interest  on  outstanding 
bonds  from  annual  to  semi-annual 
payment  without  consideration. 

Authorizes  $600,000,000  of  bonds 
or  7.30  notes,  and  empowers  the  Secre- 
tary to  specify  the  manner  of  pay- 
ment of  both  principal  and  interest. 
Compels  him  to  specify  the  interest. 

Authorizes  Secretary  to  fund  all 
interest-bearing  obligations  into  above 
bonds  at  Jils  option.  Secretary  issues 
several  hundred  millions  7.30  notes 
payable  in  currency,  resulting  in  great 
inflation. 

Close  of  the  War.  Contraction 
Secretary  funds  nearly  $1,000,000,- 
000  of  short  timeobhgations,  payable 
in  currency,  into  bonds,  on  which  he 
does  not  specify  the  manner  of  pay- 
ment, though  specifically  authorized 
to  do  so;  also  contracts  the  currency 
over  $200,000,000.  Hoaiuc'  over  $45^ 
000.000  contrary  to  law. 

Authorizes  3  per  cent,  certificates 
to  pay  compound  interest  notes,  and 
authorizes  their  use  as  bank  reserves. 


National  Blinks  loan 
their  notes  to  the  Gov- 
ernment on  interest; 
also  loan  Government 
deposits  to  the  Govern- 
ment and  draw  in- 
terest on  them. 

State  banks  are  per- 
suaded (?)  to  change 
to  National  Banks. 


and  Funding. 

Speculators  buy  up 
floating  debt  payable, 
principal  and  interest, 
in  greenbacks,  and 
drawing  inter  est 
worth  less  than  5  per 
cent,  in  coin,  and  pro- 
cure bonds  drawing  6 
per  cent,  in  coin,  and 
payment  not  specified. 

Hold  3  per  cent,  re- 


FIlSfANCtAL  LEGISLATION  :smCE  THE  WAR.      183 


A  10  per  cent,  prohibitory  tax  on 
municipal  scrip  smiigg-led  througii 
Congress  in  a  wrapping  paper  bill. 

Congress  prohibits  further  destruc- 
tion of  greenbacks.  Secretary  con- 
tinues to  retire  interest-bearing  cur- 


rency. 


serves  not  a  legal  ten- 
der, instead  of  green- 
backs, as  originally  in- 
tended. 


Bepudiation. 


Congress  declares  its  intention  to 
pay  all  of  the  Government  debt  in 
coin,  thus  repudiating  much  of  the 
original  contract.  Authorizes  increase 
of  bank  notes  and  retires  3  per  cent, 
certificates.  Releases  banks  from 
holding  reserves  on  account  of  circu- 
lation. 

Refunding. 

Authorizes  refunding  at  par  into 
long  time  bonds,  at  a  nominal  lower  \ 
interest,  payable  in  coin  of  present 
ent  standard  value,  and  exempted  from 
Federal  as  well  as  State  tax.  Author- 
izes payment  of  5-20  bonds  in  coin 
and  farther  issue  of  "paper  gold." 


Speculators  sell 
bonds  at  a  great  ad- 
vance abroad. 


Banks  report "  paper 
sold"  as  coin  on  hand. 


Contraction  of  both  Coin  and  Currency. 


Demonetizes  silver  and  hoards  gold 
to  resume.  Promises  to  redeem  green- 
backs in  coin,  January  1,  1879,  and 
authorizes  further  destruction  of 
greenbacks  and  substitution  of  bank 
notes.  Makes  banking  free  to  ail 
bondholders.  Converts  non-interest 
into  into  interest  debt  by  retiring 
fractional  currency. 

Pretends  to  remonetize  silver  by 
making  a  subsidavy  coinage  of  silver 
dollars,  maintained  above  their  bul- 
lion value  by  limited  coinage.  Pro- 
hibits further  contractions  of  green- 
backs, and  orders  them  to  be  kept  in 


Bondholders  draw 
interest  and  secure 
payment  of  gold  only, 
of  50  per  cent,  greater 
value  than  the  stand- 
ard value  of  1870. 


184 


AMERICAN  FINANCES. 


circulation.  Authorizes  tlie  Secre- 
tary to  defeat  the  preceeding  kiw  by 
funding  and  hoarding.  Pretended  re- 
sumption. Secretary  redeems  in  coin 
in  New  York  only,  and  in  sums  of 
$50  and  over. 

Secretary  receives  the  greenbacks 
for  duties  and  pays  them  on  the  prin- 
cipal and  interest  of  the  public  debt, 
same  as  coin,  also  receives  bank  notes 
for  imposts,  contrary  to  law. 

Disburses  over  $180,000,000  from 
the  Treasury  and  pays  off  over  $214,- 
000.000  of  the  public  debt,  making  a 
business  "boom"  and  depreciating 
money  16  per  cent,  for  political  effect. 

The  banks  are  again  in  control  of  the  currency  as  at  the 
outset.  They  are  also  in  possession  of  bonds  which  cost 
about  50  cents,  made  payable  at  100,  the  coin  having  appreci- 
ated 50  per  cent,  since  1870.  They  now  have  150  af  value  for 
each  50  invested;  the  greenback,  however,  has  become  a 
necessity  and  cannot  be  refused  for  imposts  or  demonetized 
without  a  panic. 


Banks  inflate  their 
currency  loans  and 
discounts  upon  a  paper 
basis  to  assist  the 
"  boom." 


CHAPTER  XIV. 


CONCLUSIONS. 


§  144.  The  historical  events  set  forth  in  the  preceedin.? 
chapters  amply  prove  the  correctness  of  our  philosophy  of 
money,  and  afford  experimental  demonstration  of  every  law 
and  principle  laid  down.  We  have  also  seen  what  legistation 
has  been,  and  hoAv  the  rights  of  the  people  have  been  in- 
vaded, and  the  Constitution  evaded,  by  a  class  of  money-mon- 
gers. We  are  now  in  a  position  to  know  what  ought  to  be 
done  under  existing  circumstances,  so  that  on  the  one  hand, 
the  people  may  be  protected  from  further  robbery,  and  on 


CONCLUSKmS.  185 

the  other,  that  no  injustice  be  done  the  public  creditors.  On 
behalf  of  individual  creditors,  the  plea  of  "innocent  third 
parties "  cannot  well  be  raised.  The  Supreme  Court  fully 
disposes  of  that  matter  as  follows: 

*  "By  the  obligation  of  a  contract  to  paynioney,  is  meant  to  pay 
that  which  law  shall  recognize  as  money  ichen  the  j)(7?/??ie?i^  is  to 
be  made. 

If  there  is  anything  settled  by  decisions  it  is  this,  and  we  do  not 
understand  it  is  to  be  controverted. 

No  one  ever  doubted  that  a  debt  of  one  thousand  dollars,  con- 
tracted before  1834,  could  be  paid  by  one  hundred  eagles  coined 
after  that  year,  though  they  contained  no  more  gold  than  ninety- 
four  eagles  coined  when  the  contract  was  iiiade;  and  this  is  not  be- 
cause of  the  intrinsic  value  of  the  coin,  but  because  of  its  legal 
value. 

The  eagles  coined  after  1834,  were  not  money  until  they  were 
authorized  by  law,  and,  had  they  been  coined  before  without  a  law 
fixing  their  legal  value,  they  could  no  more  have  paid  a  debt  than 
un-coined  bullion,  or  cotton  or  wheat.  Every  contract  for  the  pay- 
ment of  money  is  necessarily  subject  to  the  constitutional  power  of 
the  Qovernment  oxer  the  currency,  whatever  that  jjower  may  he,  and 
the  obligation  of  the  parties  is,  therefore,  assumed  with  reference 
to  that  potver." 

See  also  court  decisions  on  the  matter  of  usury,  page  160. 
What  has  been  stolen  cannot  well  be  recovered.  To  estimate 
the  robbery  and  scale  down  the  remainder  would  be  in  accord- 
ance with  the  practice  of  the  courts  in  settling  such  matters 
between  individuals,  but  in  the  writer's  opinion  it  would  not 
be  good  policy  at  present.  Should  the  public  creditors  push 
their  rascally  schemes  much  further,  it  might,  eventually,  be 
advisable  to  protect  ourselves  to  the  full  extent  of  the  com- 
mon law,  and  give  Shylock  his  pound  of  flesh  only. 

§  145.  in  settling  this  matter,  Congress  should,  in  the  first 
place,  assume  its  full  constitutional  functions  of  both  coin- 
ing money  and  regulating  its  value.  It  mu^t  needs  regulate 
the  value  of  money,  by  regulating  the  supply  according  to 
demand. 

§  146.  As  the  outstanding  bonds  are,  or  soon  will  be,  all 
payable  according  to  law,  in  coin  in  the  ''standard  value  "  of 
1870,  it  would  be  proper,  and  avoid  all  taint  of  repudiation,  to 

*  Parker  vs.  Davis,  12  Wallace  p.  548-9. 


186  AMERICAN  FINANCES. 

make  the  value  of  coin  in  1870  the  standard  of  regulation. 
It  would  be  much  above  the  original  loan,  aud  yet  below  its 
present  value. 

There  would  be  but  little  danger  that  coin  would  rise  above 
that  point,  if  Congress  made  as  little  demand  for  it  as  possi- 
ble for  other  purposes.  Tlie  Government  shoiild,  therefore, 
maintain  aud  use  a  domestic  currency  of  paper,  and  collect 
its  revenues  in  the  same. 

§  147.  The  first  act '"  necessary  and  proper"  to  regulate  the 
vahie  of  money,  would  be  to  suppress  all  banks  of  issue,  and 
assume  the  entire  control  of  all  the  currency.  This  is  easily 
•done  and  easily  understood.  Then  the  regulation  of  value 
must  be  accomplished  automatically,  the  currency  being 
neither  issued  in  lumps  of  millions,  and  retired  in  like  man- 
ner by  acts  of  Congress,  nor  yet  at  the  option  of  any  man  or 
class  of  men,  as  is  now  the  case.  This  can  easily  be  done  as 
follows:  The  last  section  of  the  National  Br,nk  act 
reserves  the  right  to  alter,  amend,  and  repeal  any  or  all  of  its 
provisions.  We  can,  therefore,  retire  the  National  Bank  cur- 
rency without  invading  any  ''vested  rights." 

This  should  be  done  by  calling  in  ever}'  bank  note,  and 
substituting  greenbacks  therefor.  This  would  be  no  inflation. 
This  could  be  accomplished  by  an  order  issued  to  the  banks 
to  transmit  at  once  to  the  Treasyry  every  bank  note  in  their 
possession;  to  pay  no  bank  notes  over  their  counters,  and,  as 
often  as  convenient,  return  any  bank  notes  in  their  hands, 
receiving  an  equal  amount  of  greenbacks  therefor. 
Then  the  Government  should  present  the  notes  to  the  sepa- 
rate banks  for  payment.  If  paid,  the  bonds  would  be  released 
and  returned  to  the  banks.  If  not,  the  bonds  could  lawfully 
be  cancelled  to  the  extent  of  the  unpaid  notes.  This  opera- 
tion would  not  disturb  business,  nor  change  the  status  of  the 
currency. 

§  148.  The  office  of  Comptroller  of  the  Currency  should  be 
continued,  and  he  should  be  directed  and  compelled  by  law 
to  frequently  estimate  the  value  of  the  currency  in  exchange 
for  a  multiple  standard  of  merchandise.  This  standard  should 
consist  of  all  the  leading  articles  of  American  production, 
and  be  selected  with  a  view  to  their  uniformity  of  lal)or  cost 


CONCLUSIONS.  187 

and  freedom  from  monopoly.  This  would  constitute  the 
multiple  stiindard  advocated  by  Joseph  Lowe  (1822);  G.  Pou- 
lette  Schorpe,  G.  R.  Porter  (1838);  W.  Stanley  Jevous  and 
others.  This  is  the  usual  method  of  measuring  the  "  pur- 
chasing power  "  of  money  which  is  defined  by  all  intelligent 
writers  as  its  true  value. 

Prof.  Simon  Newcomb,  says: 

*"  Dollars,  and  all  other  kinds  of  money,  are  worth  what  they 
will  buy  j'ou  to  eat  and  wear ;  and  measuring  value  by  any  otlier 
standard  is  like  trying  to  feed  a  hungry  man  on  acts  of  Congress." 

John  Stuart  Mill  uses  the  following  language: 

ifThe  value  of  money  is  inversely  as  general  prices;  falling  as 
they  rise  and  rising  as  they  fall." 

And  many  other  authors  might  be  cited  to  like  effect. 

§  149.  It  should  be  further  enacted  that  if,  upon  such 
•estimate,  it  should  be  found  that  the  currency  was  below  the 
standard  value  of  1870  (or,  in  other  words,  exchange  for 
less  of  the  standard  merchandise),  its  use  should  forthwith 
cease,  and  if  deemed  necessary,  a  provision  for  funding  might 
be  added.  On  the  other  hand,  should  it  be  found  above  the 
standard,  the  Secretary  should  be  compelled  to  call  in  and 
pay  off'  bonds  in  such  amount  as  might  be  necessary  to  reduce 
the  value  of  money  to  the  standard  by  increasing  its  supply. 
This  system  would  be  simple  and  reliable,  and  could  not  be 
tampered  with  by  any  man  or  combination  of  men.  The 
issuing  and  retiring  of  the  currency  would  depend  upon  the 
market  price  of  a  vast  amount  of  American  products.  This 
great  body  of  goods  would  be  too  enormous  and  diversified  to 
be  cornered  by  any  of  the  methods  of  gold  or  wheat  gam- 
blers. Should  currency  ba  hoarded  to  induce  a  fall  of  prices  or 
panic,  the  Secretary  would  be  compelled  to  replace  the 
hoarded  currency  with  a  fresh  issue,  and  when  the  hoarded 
money  came  forward  again,  a  like  amount  would  be  with- 
drawn as  soon  as  prices  began  to  be  affected;  the  result  would 
be  to  prevent  any  disturbance  of  business. 

The  law  and  market  reports  woild  enable  any  man  of 
ordinary  intelligence  to  prove  whether  the  Comptroller  was 


*  A,  B,  C  of  Finance  :  Prof.  Simon  Newconib,  Harpers,  N.  Y. 
X  Mills'  Prin.  Pol.  Ecoupmy,  p.  297. 


188  AMERICAN  FINANCES. 

performing  Ms  duty  or  not.  He  could  hide  nothing  by  any 
system  of  book-keeping. 

There  would  be  no  element  of  uncertainty  on  the  score  of 
lost  and  destroyed  currency,  as  in  a  per  capita  arrangement. 
Every  note  lost  would  be  a  gain  to  the  Treasury,  and  that 
through  shortening  of  supply,  induce  replacement.  Every 
contract  to  pay  money  would  then  represent  exactly  so  much 
purchasing  power,  never  more  nor  less.  It  would  always 
convey  to  the  creditor  the  ability  to  go  into  the  markets  and 
get  a  fixed  amount  of  goods  generally.  In  case  of  the  coin 
standard,  the  same  is  not  true,  it  means  only  a  fixed  amount 
of  bullion,  regardless  of  its  exchange  ratio,  with  other  things. 

§  150.  Upon  this  plan  there  might  come  a  time  when  there 
would  be  no  more  bonds  to  be  called.  The  whole,  by  increase 
of  population  and  production,  might  become  current.  It 
would  then  be  in  order  to  reduce  taxation  to  such  extent  as 
to  afford  the  requisite  amount  of  debt.  So  long  as  it  could 
be  kept  current,  it  would  be  no  burden  to  the  people.  Here- 
after, should  war  or  any  other  cause  occasion  enlarged  ex- 
penditure, the  means  should  be  raised  by  taxation,  instead  of 
borrowing,  unless  our  resources  were  inadequate,  which  is 
never  the  case  when  loans  can  be  negotiated  within  our  own 
territory.  When  a  man  can  lend  he  can  be  taxed,  the  same 
as  when  a  man  can  volunteer  if  he  chooses,  he  can  be  drafted. 

§  151.  With  regard  to  international  trade,  there  is  much 
confusion  in  the  minds  of  many. 

Because  nearly  all  nations  use  silver  and  gold  for  domestic 
currency,  it  has  come  to  be  considered  a  sort  of  international, 
or  "'  money  of  the  world." 

But  this  is  in  no  sense  tme.  Suppose  boxwood  was  used 
for  measures  in  both  France  and  America,  they  using  the 
meter,  we  the  foot.  It  would  not  follow  that  boxwood,  any 
more  than  pine,  was  the  measure  of  the  world;  any  thing  re- 
presenting a  difterent  amount  of  extension  could  be  used  in 
either  country  quite  as  well.  So  also  the  use  of  a  variety  of 
meiisures  is  of  no  consequence,  we  may  use  both  the  foot 
and  the  yard,  and  the  "  par  of  exchange  "  with  the  meter  would 
differ,  but  there  would  be  no  loss  or  gain  by  virtue  of  using  one 
or  the  other  to  effect  exchanges.    So  also  with  the  use  of  two 


CONCLUSIONS.  189 

dollars  differing  in  value,  the  par  of  exchange  with  the  franc 
would  differ,  but  there  would  be  no  difference  in  the  amount  of 
cloth,  gold,  or  anything  else,  that  could  be  procured  for  a 
given  amount  of  wheat,  corn,  or  other  commodity,  in  con- 
sequence of  using  either  dollar.  In  the  case  of  the  boxwood, 
however,  if  there  should  be  an  export  demand  for  boxwood, 
it  would  affect  the  value  of  foot  rules,  whereas,  if  we  used 
pine  it  could  not.  Or,  to  carry  the  simile  further:  Suppose 
we  reverse  the  usual  order  of  measurement,  and  declare  that 
the  pound  shall  consist  of  a  piece  of  cast  iron  of  certain 
quality  and  of  fixed  value/thus  measuring  weight  by  value, 
instead  of  value  by  weight,  as  is  now  done.  In  this  case 
an  export  demand  for  iron  would  change  our  standard  pound 
weights. 

Cutting  loose  from  the  "  money  of  the  world  "  removes  us 
from  the  influence  of  the  foreign  money  markets,  and  enables 
us  to  protect  ourselves  from  the  machinations  of  foreign 
money  changers. 

If  A  contracts  with  a  man  in  France.  A  will  agree  to  pay 
francs.  If  he  contracts  with  A  in  America,  he  will  agree  to 
pay  dollars.  Neither  promises  any  merchandise  of  any 
specific  kind  or  quantity,  and  the  laws  of  France  will  de- 
termine what  A  pays  him,  and  the  laws  of  the  United  States 
what  he  shall  pay  A.  Until  there  is  some  treat  1/  between  the 
two  nations  determining  tJiis,  there  is  no  money  of  the  worlds 
and  all  international  trade  is  barter.  At  present  there  is  no 
international  legal  tender. 

The  fixity  of  purchasing  poAver  given  to  our  currency  by 
the  plan  proposed,  would  soon  convince  men  of  its  superiority 
and  should  other  nations  adopt  a  similar  scheme,  the  par  of 
exchange  could  be  quoted  in  such  m'oney,  as  well  as  gold,  and 
instead  of  draining  it  ofi"  to  settle  balances,  thus  disturbing 
business,  bullion  might  still  be  used  at  its  merchantile  value, 
constituting,  as  it  does  now,  the  barter  standard  of  exchanges 
between  nations. 

We  have  seen  that  preceeding  system  would  return  to  cred- 
itors the  purchasing  power  borrowed,  and  enable  them  to  go 
to  market  and  get  the  exact  amount  of  merchandise  that  they 
could  with  the  money  loaned.     This  would  certainly  be  just, 


190  AMERICAN  FINANCES. 

for  it  would  be  exactly  equivalent  to  an  indestructible  invest- 
ment for  the  time  plus  the  usurj'. 

§  152.  As  an  abstract  question  of  "  value  received,"  how- 
ever, there  might  be  a  change  of  value  if  the  debt  continued 
any  great  lengtli  of  time.  In  our  discussion  of  the  science 
of  value  and  measurement,  we  found  labor  to  be  the  true 
standard.  As  Hon.  T.  W.  Ferry  said:  ""  Labor  alone  is  the  true 
standard  of  value  and  is  its  origin  in  the  cost  of  produc- 
tion.'"* 

§  153.  As  soon  as  it  is  understood  that  the  standard  of  meas- 
nreuient  for  value  and  the  actual  tool  used  to  measure  with 
can  be  distinct  and  separate  things,  it  will  appear  that  any 
thing  valuable  may  be  made  the  standard,  regardless  of  its 
quaiiiications  as  a  currency.  This  is  best  illustrated  by  the 
specie  basis  system  adopted  by  the  Bank  of  Venice.  If  we 
regulate  the  value  of  currency  by  convertibility,  the  standard 
must  be  of  a  nature  to  serve  as  a  currency.  By  the  incon- 
vertible plan,  however,  this  is  not  necessary. 

§  154.  If  the  currency  can  be  got  only  in  exchange  for 
the  standard,  it  will  have  the  value  of  such  standard 
exactly  the  same  as  though  the  standard  could  be  had 
in  exchange  for  the  currency.  Curreucy  that  always 
costs  coin  must  always  be  of  the  value  of  coin;  s-o  also  cur- 
rency that  costs  anything  else  will  always  be  of  the  value  of 
that  which  must  be  given  for  it.  Upon  this  principle  the 
inconvertible  Venetian  money  was  regulated  by  coin. 

§  155.  But  with  such  an  arrangement,  labor  maybe  substi- 
tuted for  coin,  and  a  day  of  hibor  can  as  well  be  the  standard 
as  a  piece  of  bullion.  In  this  way  an  absolutely  stable 
staudard  can  be  devised  for  our  currency.  The  details  of 
such  a  sys*t'ra  must  needs,  be  somewhat  as  follows: 

1.  Substitution  of  a  day  of  labor  for  a  certain  amount  of 
metal  as  the  unit  of  currency,  standard,  or  coinage. 

2.  Free  coinage  of  the  same,  by  the  Government  receiving 
all  labor  offered  at  a  fixed  rate  in  currency. 

o.  A  system  of  receiving  and  applying  this  labor,  distrib- 
uted over  the  country,  at  such  pt)ints  as  would  be  easily  ac- 
cessible and  where  public  work  was  needed. 

Globe,  Dec.  4,  74. 


CONCLUSIONS.  191 

The  present  sj'stem  proceeds  upon  the  theory  that  25  8-10 
grains  of  gold  is  valuable  just  in  proportion  to  the  labor  gen- 
erally, and  on  the  average  required  to  procure  and  bring  it  to 
market,  certainly  then  the  labor  itself  would  have  like 
value. 

Suppose,  for  convenience,  we  consider  it  to  be  a  day  of  labor 
to  25  8-10  grains  of  gold.  A  million  dollars  of  coin  costs  the 
people  a  million  days  of  labor,  and  serves  no  other  purpose  if 
used  as  currency  than  a  piece  of  paper  would.  Upon  the 
plan  proposed,  the  value  of  each  rests  upon  exactly  the  same 
basis,  the  labor  cost,  and  each  would  necessarily  have  the 
same  value. 

The  present  system  further  proceeds  upon  the  theory  that 
free  coinage  prevents  all  monopoly  interference.  How 
much  more  true  it  is,  of  this  plan,  will  appear  when  we  con- 
sider that  gold  mines  are  local  and  isolated,  and  gold  a  mer- 
chandise in  the  hands  of  only  a  class,  and  that  it  can  be 
easily  hoarded  and  accumulated,  therefore  easily  manipulated 
by  designing  men.  Neither  is  its  pioduction  uniform  either 
in  quality  or  labor  cost.  On  the  other  hand,  labor  is  univer- 
sally possessed  and  diffused  among  men.  It  is  uniform  in 
quantity,  and  cannot  be  hoarded,  but  must  go  to  market,  in. 
fact,  perishes  every  moment  if  not  used;  and  a  day  of  labor 
costs  a  given  amount  of  effort  and  sacrifice  to  ail  alike. 

g  156.  The  Government,  by  receiving  and  applying  this 
labor,  derives  a  net  gam  equal  to  the  labor  expended  in  pro- 
ducing a  like  value  in  coin.  In  the  case  supposed,  there 
would  result  a  million  days  of  labor  expended  upon  Fome 
useful  public  work,  and  a  million  dollars  of  currency;  in- 
stead of,  as  now,  a  million  days  spent  in  digging  holes  in  the 
ground  and  filling  them  up  again  to  no  purpose,  and  a  mil- 
lion dollars  in  coin,  not  as  convenient,  and  no  more  valuable 
as  a  currency. 

The  details  of  management  would  be  on  a  different  scale, 
but  no  more  difficult  than  that  of  coinage.  Government 
officials  have  to  be  intrusted  with  weighing,  assaying,  aud 
alloying  the  metals.  So,  also,  they  would  have  to  see  that 
the  work  was  performed,  and  the  danger  of  their  bribery  or  cor- 
ruption by  bullion  mongers  and  rich  men,  it  seems  to  the 
writer  is  quite  as  great  as  by  common  laborers. 


192  AMERICAN  FINANCES. 

The  Government  lias  to  buy  machinery,  buildings,  chemi- 
cals, f  nel,  alloy,  etc.  So,  also,  would  it  have  to  buy  materials 
to  be  ATrought  upon,  and  skilled  labor  to  superintend  the 
work,  at  whatever  the  m:irket  price  might  be.  Skilled  labor 
being  but  compounded  labor,  serves  only  to  stratify  it,  so  to 
speak,  and,  of  course,  only  the  lower  stratum  would  be  oifered 
at  the  minimum  rate. 

§  157.  This  system  would  be  perfectly  self-regulating. 
Should  the  currency  inflate,  prices  and  wages  would  rise. 
This,  of  course,  would  shorten  the  supply  of  men  oifering  at 
the  fixed  rate,  and  shorten  the  production  of  money.  Should 
there  be,  from  any  cause,  an  increased  demand  for  money,  and 
consequent  fall  of  wages  and  prices,  the  opposite  effect  would 
at  once  result,  thus  increasing  the  currency  in  an  adequate 
manner.  Should  any  man  or  combination  of  men  Avithdraw 
currency  by  hoarding,  it  would  be  supplied  as  soon  as  the 
effect  was  felt.  This  system  would  solve  the  problem  of 
able-bodied  pauperism,  or  tramps^  for  all  could  find  employ- 
ment. It  would  save  a  vast  amount  of  labor  that  now  goes 
to  waste  for  want  of  opportunity  to  work. 

It  may  be  urged  that  it  is  not  the  duty  of  the  Grovernment 
to  furnish  employment  to  any  one.  If,  by  so  doing,  it  can 
"  promote  the  general  welfare,"  it  becomes  its  duty  to  do  so, 
more  especially  if,  at  the  same  time,  it  becomes  an  incident 
to  the  coinage  of  money  and  regulating  its  value. 

If  it  can  procure  labor  at  minimum  wages,  and  with  it  pro- 
duce some  public  property  and  a  currency  at  the  same  time, 
it  is  its  duty  to  do  so  quite  as  much  as  to  take  bullion  belong- 
ing to  an  individual  and  coin  it  at  its  own  expense,  producing 
nothing  but  the  currency ;  or  buy  silver  bullion  and  make  subsi- 
dary  coinage  on  speculation,  as  it  does  now,  putting  in  nearly 
all  bullion  and  a  little  ''  fiat,"  when  it  might  as  well  put  in 
nearly  all  '"fiat"  and  but  little  bullion. 

§  158.  This  system  would  allow  no  man  to  inflate  the  cur- 
rency by  making  promises  which  he  never  intends  to  fulfill 
if  he  can  avoid  it,  and  by  lending  them  as  money,  draw  inter- 
est on  what  he  owes.  Instead  of  this,  every  dollar  would 
cost  value  received  in  hard  work  the  same  as  a  gold  dollar,  a 
bushel  of  wheat,  or  corn,  or  a  like  value  in   any  other  com- 


CONCLUSIONS.  193 

modity.  In  fact,  the  currency  would  spring  from  the  same 
source  that  gives  rise  to  ail  other  valuable  things,  and  under 
precisely  the  same  laws  of  labor  cost. 

This  currency  would  always  represent  a  fixed  amount  of 
labor,  and  generally,  and  on  the  average,  the  product  of  a  fixed 
amount  of  labor.  Should  the  effectiveness  of  labor  be  en- 
hanced during  the  time  a  debt  has  to  run,  unlike  the  first  plan, 
the  creditor  would  not  only  get  the  merchandise  represented 
by  the  loan  when  it  was  made,  but  also  an  amount  equivalent 
tothe  gain  due  the  improved  processes  of  production.  He 
would,  in  other  words,  get  "value  received""  instead  of,  as  in 
the  other  case, "  merchandise  received,"  or.  as  with  specie  basis, 
"bullion  received." 

Finally,  it  is  the  only  system  of  which  the  writer  has  any 
knowledge,  that  conforms  fully  to  all  the  conditions  of  a 
perfect  and  stable  standard  of  value,  as  theoretically  defined 
by  the  established  philobophy  of  the  schools.  It  is  a  system 
far  in  advance  of  the  present  stage  of  civilization,  and  not 
likely  to  be  adopted  at  once. 

On  the  other  hand,  the  first  plan  proposed  conforms  to  the 
civilization  and  circumstances  of  our  country;  also  to  our  laws 
and  public  debt  contracts  as  they  are,  and  it  could  be  profit- 
ably advocated  by  currency  reformers,  and  its  adoption  urged 
at  this  time. 

It  would  work  no  injustice  to  creditors — violate  no  contract 
— and  would  stop  once  for  all  the  present  swindling  schemes  of 
alternate  inflation  and  depreciation,  to  be  followed  by  con- 
traction and  appreciation. 

§  159.  It  should  be  supplemented  with  legislation  designed 
to  prevent  credit  transactions.  The  system  of  compounding 
deposits  already  described  would  remain  and  do  mischief, 
though  not  so  much,  because,  as  its  inflation  eflect  was  felt, 
contraction  of  currency  would  offset  and  discourage  it,  and 
as  it  collapsed,  increasing  currency  would  neutralize  its  dam- 
aging effect;  as  it  is  now,  the  currency  expands  and  contracts 
with  the  loans  and  discounts,  enhancing  the  mischief,  appear- 
ing when  it  is  not  needed,  and  disappearing  when  it  is  most 
needed.  The  recommendation  of  Hugh  McCulloch,  that  the 
payment  of  interest  on  deposits  be  prohibited,  would  have  a 

-•  o 

-i-0 


194  AMERICAN   FINANCES. 

beneficial  effect,  aud  the  Government  ought  to  provide  a 
deposit  system  of  absolute  safety  to  depositors  for  ail  who 
chose  to  avail  themselves  of  it. 

A  system  of  postal  savings  banks  somewhat  similar  to  the 
British  should  be  adopted.  The  Government  receiving  a 
deposit,  and  allowing  the  depositor  to  check  out  at  the  same 
or  any  other  office,  paying  no  interest  and  doing  no  loaning, 
receiving  the  use  of  the  funds  while  on  deposit,  as  compensa- 
tion for  storage  and  transportation  of  funds.  No  actual 
transportation  would,  of  course,  be  req,uired,  except  to  settle 
balances  between  offices.  This  would  be  the  safest  possible 
deposit,  and  most  convenient  exchange  system,  and  is  quite 
as  proper  for  the  Government  to  undertake  as  the  postal  or 
money-order  business.  As  it  is,  the  Government  coins  money 
and  transfers  money,  but  will  not  take  it  on  storage,  which  is 
absurd,  and  forces  the  people  to  deposit  with  loan  and  discount 
concerns,  liable  to  explode  at  any  time  and  leave  them  penni- 
less. 


CHAPTER  XV. 


TABLES   AND   DIAGRAMS. 


§  160.  In  all  logical  processes,  the  first  and  most  important 
matter  is  the  collection  of  facts.  The  circumstances  of  the 
subject  under  discussion  are  many  and  complex,  and  it  be- 
*  comes  necessary  that  the  facts  be  properly  collected.  As  the 
bases  of  our  reasoning,  we  have  taken  the  official  and  other 
reliable  records,  with  regard  to  population,  international  trade, 
coinao-e,  production  of  bullion,  and  its  movements  to  and 
from  this  country;  the  rise  and  fall  of  prices;  increase  and 
decrease  of  bank  and  Government  currency;  loans,  discounts, 
and  specie  of  the  banks;  the  public  debt  statements,  aud 
statutes  with  regard  to  the  debt. 

From  these  we  have  constructed  tables  showing  these  facts. 
To  more  readily  comprehend  these  and  their  relationship  to 
eai'h  other,  we  have  constructed  diagrams  in  which  the  rise 


TABLES  AND  DIAGRAMS.  195 

and  fall  of  the  lines  represents  the  increase  and  decrease  of 
numbers  in  the  tables.  From  the  public  debt  statements, 
and  the  price  tables  of  merchandise  and  coin,  we  have  calcu- 
lated other  tables  and  diagrams,  showing  the  transactions  be- 
tween the  Government  and  its  creditors,  and  reducing  such 
transactions  from  their  nominal  to  their  coin  and  merchan- 
dise values. 

These  are  purely  mathematicah  deductions  froDi  recorded 
facts  relating  to  prices  and  transactions.  As  the  premises 
are  a  matter  of  record,  they  cannot  be  considered  in  dispute. 
Deductions  which  depends  upon  pure  mathematics  must  be 
accepted  without  controversy.  We  have  also  deductions  and 
opinions  depending  upon  processes  of  logic,  which  we  expect 
to  be  criticised.  If  the  enumerations  are  complete  as  regards 
the  facts  and  principles,  we  must  be  guided  by  the  philoso- 
pher's rule  that,  "a  theory  that  conforms  to  all  the  known 
facts  must  be  accepted  as  the  true  theory  until  further  facts 
are  discovered."  There  is  one  element  of  error  which  has  not 
been  eliminated.  Because  people  are  accustomed  to  quota- 
tions of  prices  according  to  calendar  years,  we  have  taken 
the  same.  The  fiscal  year,  however,  ends  and  begins  six 
months  earlier.  For  instance^  the  fiscal  year  1865,  consists  of 
the  twelve  months  from  June  30,  18G4:,  to  June  30, 1865;  the 
highest  prices  of  merchandise  and  gold  were  in  1864  calender, 
but  1865  fiscal  year.  This  vitiates  the  result  somewhat,  and 
makes  the  difference  between  the  nominal  and  coin  or  mer- 
chandise values  less  when  we  were  borrowing,  and  more  when 
we  were  paying,  so  that  the  tfbles  show  the  amount  bor- 
rowed a  little  too  high,  and  the  amount  paid  a  little  too  low. 

§  161.  Table  No.  1  exhibits  the  average  price  each  year  of  a 
fixed  quantity  of  fifteen  staple  American  products,  selected 
with  a  view  to  their  freedom  from  the  influence  of  monopoly, 
or  tariff,  and  as  most  likely  to  maintain  their  nominal  value 
as  related  to  each  other,  and  their  labor  cost.  Such  quantities 
of  each  are  taken  that  the  v/hole  aggregates  2,000  pounds, 
which  constitutes  our  merchandise  standard  of  value.  This 
is  the  usual  method  of  measuring  or  testijig  the  coin  stand- 
ard by  its  purchasing  power.  This  multiple  standard  we 
use  precisely  as  we  use  25  8-10  grains  of  gold,  in  our  calculations 


196  AMERICAN  FINANCES. 

writing  tons  instead  of  dollars.  Its  stability  of  value  we  have- 
already  discussed.  In  the  same  table  appears  the  prices  of 
coin  in  currency,  and  currenc)^  in  coin,  and  the  changes  in 
the  purchasing  power  or  value  of  each  measured  by  the  stand- 
ard ton,  100  being  considered  the  average.  The  gold  and 
merchandise  value  of  412^  grains  of  standard  silver  bullion 
also  appears  in  this  table. 

§  162.  Table  No.  2  exhibits  the  international  movements 
of  merchandise  and  bullion,  also  the  American  production 
of  bullion  and  relative  amount  of  gold  and  silver,  and  the 
periods  during  which  there  was  a  residue  of  debit  or  credit 
to  the  account  of  this  country  in  its  international  trade.. 
This  table  also  shows  the  average  prices  during  these  periods,. 
showing  that  we  always  buy  dear  and  sell  cheap,  except  whert 
we  export  bullion  in  settlement  of  balances.  This  forcibly^ 
shows  the  folly  of  the  ''commercial"  theory,  that  a  balance 
of  trade  payable  payable  in  bullion  is  of  advantage.  Such 
bullion  is  always  had  at  a  sacrifice  of  reduced  prices  for  goods. 

§  163.  Table  No.  3  exhibits  the  statistics  of  currency  and 
population  during  the  period  from  1830  to  1880  inclusive, 
and  requires  no  further  explanation. 

§  164.  Table  No.  4  is  a  digest  of  the  public  debt  statements 
for  twenty-one  years — 1860  to  1880  inclusive,  giving  each 
class  and  kind  of  paper  issued  since  July  1,  1861;  the 
amount  of  each  outstanding  each  year,  and  the  total.  The 
number  over  each  denomination  refers  to  the  statute  in  the 
apj)endix  relating  to  that  issue.  The  letters  indicate  that  the 
authorizing  acts  were  as  follows: 

A,  legal  tender;  B,  payment  of  principal  not  specified;  C, 
principal  and  interest  payable  in  coin;  D,  payable  principal 
and  interest  in  currency. 

§  165.  Table  No.  5  exhibits  the  nominal  transactions  be- 
tween the  Government  and  its  creditors,  showing  the  amount 
borrowed  each  year,  with  interest,  without  interest,  and  total. 
(This  was  all  iu  currency,  or  at  currency  value).  It  also 
shows  the  amount  paid  on  the  principal,  and  on  the  interest 
each  year,  and  how  much  of  such  payments  were  coin  and 
how  much  curi'ency,  aud  the  total  reduced  to  currency  value 
at  the  time  it  was  paid;  also  the  balance  outstanding  each 
year,  according  to  report  of  the  Secretary  of  the  Treasury. 


TABLES  AND  DIAGRAMS.  197 

From  this  table  is  omitted  the  certificates  of  deposits 
of  1872,  which  are  not  a  loan  to  the  Government;  also  the 
silver  certificates  for  the  same  season,  and  the  Pacific  R.  R. 
bonds,  which  are,  according  to  law,  but  an  endoi'sement  by 
the  Government.  All  the  other  paper  is  properly  Govern- 
ment debt^  except  a  small  ami  indefinite  amount  of  the  coin 
certificates. 

§  166.  Table  No.  6  shows  the  coin  value  of  each  transac- 
tion represented  in  table  No.  5;  also  the  coin  value  (consid- 
ering bonds  at  par)  of  the  outstanding  debt  each  year;  also 
a  column  showing  annual  balances,  the  result  of  charging 
the  Government  with  coin  value  borrowed,  and  crediting  it 
with  coin  value  paid  on  account  of  the  principal  of  the  debt, 
not  considering  the  interest;  also  another  column  of  annual 
balances,  the  result  of  charging  the  Government  with  the 
coin  value  borrowed,  and  6  per  cent,  compound  interest,  and 
crediting  it  with  total  amount  of  coin  value  paid  on  account 
of  principal  and  interest. 

§  167.  Table  No.  7  shows  the  value  in  standard  tons,  or  the 
purchasing  power  of  each  transaction  represented  in  table  5; 
also  two  columns  showing  the  amount  of  standard  merchan- 
dise represented  by  the  outstanding  debt  each  year.  One 
column  showing  the  number  of  tons  required  to  pay  in  full 
in  coin,  the  other  the  amount  required  to  pay  in  full  in  cur- 
rency. 

It  also  shows  a  column  representing  annual  balances,  the 
result  of  charging  the  Government  with  tons  received  and 
crediting  it  with  tons  paid  on  account  of  the  principal,  not 
considering  the  interest.  Also  a  column  showing  annual 
balances,  the  result  of  charging  the  Government  with  tons 
received  and  6  per  cent,  compound  interest,  and  crediting  it 
with  total  amount  paid  on  account  of  principal  and  interest. 

§  168.  Table  No.  8  gives  a  brief  digest  of  the  inflation,  con- 
traction,  funding,  and  repudiation  legislation,  and  shows  the 
amount  outstanding  each  year  of  each  class  of  paper  A,  B,  C, 
and  D,  and  exhibits  the  movement  of  the  paper  as  related  to 
the  legislation,  and  the  repudiatory  changes  of  contract,  both 
direct  and  indirect,  by  which  the  people  have  been  defrauded 
jfor  the  benefit  of  the  public  creditors. 


198  AMERICAN  FINANCES. 

§  169,  Table  No.  9  shows  the  nominal  and  merchandise^ 
\a  lie  of  the  Government  revenues,  and  the  disbursements,., 
exclusive  of  the  interest,  which  is  shown  elsewhere.  This 
requires  no  explanation. 
§  170.  Table  No.  10  shows  the  leading  facts  set  forth  in  the  vari- 
ous precedinor  tables,  arranged  in  columns  representing  the 
years  1860, 1866, 1870, 1879,  marking  the  commencement  and 
close  of  the  war,  and  inflation  period,  and  also  the  first  and  second 
funding  operations,  and  resumption.  This  table  shows  some 
of  the  deductions  from  the  changes  in  amounts  and  values 
during  these  periods.  Still  other  deductions  can  be  made.  It 
will  be  observed  that  while  there  has  been  a  nominal  reduc- 
tion of  i)rincipal  and  interest,  there  has  been  an  increase  of 
the  merchandise  values,  and  the  amount  of  plundering  going 
on  has  been  enormous. 

§  171.  From  these  tables  is  constructed  Diagram  No.  1. 
The  scales  to  which  the  lines  are  laid  appear  in  the  margin, 
and  are  numbered  in  parenthesis  to  correspond  to  the  num- 
ber of  the  line  to  which  it  belongs.  Commencing  at  the  bot- 
tom as  line  1,  we  have  the  international    trade   lines  scale 

150,000,000  to  the  square.     The  solid  line  ( )  represents 

exports,  the  dotied  line  ( )  imports  —  the  distance  of 

each  from  the  base  line  at  the  bottom  the  total  amount,  and 
the  distance  apart  the  balance  to  debtor  or  creditor  of  the 
country  on  account  of  total  foreign  commerce,  as  imports  or 
exports  chance  to  be  in  excess.  These  amounts  are  expressed 
in  coin  throughout.  To  learn  the  real  amount  of  merchan- 
dise repres-ented,  the  purchasing  power  of  coin  must  be  con- 
sidered. Line  No.  2  is  the  population  line,  scale,  5,000,000  to 
the  square  from  lower  base  lines.  This  line,  considered  with 
the  two  first,  and  the  value  of  coin,  gives  some  idea  of  the  re- 
cent enormous  international  trade  of  this  country.  Line  3 
exhibits  the  coinage  at  the  United  States  Mint.  Scale,  one 
dollar  per  capita  to  the  square  from  second  base  line.  From 
1870  to  1880  this  line  is  dropped  down  six  squares  to  accom- 
modate the  trade  and  population  lines.  The  upper  line  rep- 
resents total  coinage,  and  the  lower,  silver;  the  space  between 
the  two  the  gold  and  minor  coinage. 

Line  4  represents  increase  and  decrease  of  stock  of  coin 


TABLED  A2W  DIAGRAMS.  li)» 

and  bullion  in  the  country.  Scale,  ^^20,000,000  to  the  square 
from  base  line  3.  The  distance  below  the  base  line  repre- 
sents the  decrease  during  the  year  by  virtue  of  production 
and  trade,  the  distance  above  the  increase.  Two  other  lines 
are  sprung  off  from  base  line  3.  The  scale  is  the  same,  and 
the  upper  line  represents  the  total  product  of  bullion  in  this 
country ;  the  space  between  the  base  and  the  lower  line  the  silver 
and  the  space  between  the  two  the  gold.  The  space  between 
the  total  product  line  and  the  line  of  increase  and  decrease 
of  stock  represents  the  net  export  of  coin  and  bullion  for 
the  year.  Line  5  represents  the  rise  and  fall  of  the  price  of  the 
standard  ton,  or  the  rise  and  fall  of  prices.  From  1861  to  1879 
the  upper  line  is  the  paper  price,  and  the  lower  the  coin  price. 
Scale,  five  dollars  to  the  square,  average  coin  prices,  $46.13. 

Line  6  represents  the  increase  and  decrease  of  bank  and 
Government  currency,  per  capita,  excluding  all  Grovernment 
paper  not  a  legal  tender,  except  the  fractional,  and  including 
fractional  silver  and  silver  dollars  since  1876.  Scale,  two 
dollars  per  capita  to  the  square  from  base  line  4.  Line  7 
represents  the  loans  and  discounts  of  the  banks  per  capita. 
Scale,  two  dollars  per  square  from  base  line  4. 

Line  8  represents  the  increase  and  decrease  of  the  value 
or  purchasing  power  of  money,  measured  by  the  standard 
ton,  the  base  line  being  the  average  for  fifty  years,  and  con- 
sidered as  par,  or  100,  the  fluctuations  being  on  a  scale  of  10 
percent,  to  the  square.  The  lower  line,  from  1861,  repre- 
sents currency,  the  upper,  gold,  and  the  dotted  line  silver. 


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TABLES  AND  DIAGRAMS. 


>0i 


§  172.  Ill  diagram  No.  2,  the  upper  line  represents  tlie 
ontstanding  debt,  the  next  the  nominal  amount  of  interest 
paid,  both  coin  and  paper,  the  next  the  coin  value  of  the  in- 
terest paid,  the  next  the  amount  of  interest  paid  in  coin,  the 
space  between  this  and  the  nominal  (second)  line  the  amount 
of  currency  interest  paid,  and  the  lower  line  the  merchandise 
value  or  purchasing  power  of  the  total  interest  paid. 

The  line  representing  the  principal  is  on  the  scale  of  $200,- 
000,000  to  the  square  from  upper  base  line. 

The  interest  lines  are  $10,000,000  to  the  square  from  lower 
base  line,  and  the  merchandise  line  is  on  the  scale  of  500,000 
tons  the  square  from  lower  base  line. 


Nominal 
debt  scale 
S200000000 
to  the  sqr. 
from  2nd 
line. 

Interest 
scale  .fio, 
000,000    to 
the  sqr  fr : 
lower  line ' 
Mdsesc'le 
500000  tons 
to  the  sqr 
irhvr  line 


30 
25 
•M 
15 
10 
5 

140 

130 

120 

110 

100 

90 

80 

TO 

60 

50 

40 

30 

20 

10 

28 

26 

24 

22 

20 

18 

16 

14 

12 

10 

8 

6 

4 

2 

c 

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» 

Diagram  No.  2. 

Nominal  debt. 

Total  interest 

Coin  interest  x — x 
Coin  value  of  total  in- 
terest  

Currency  interest  from 
X— X  to 

Mdse  tons  value  of  total 
interest. 


O^C'l  CO 

cc  CO  :o  — 

OG  00  00  C<C' 


»f^lOCOt^OC'C^O^C<lCO'^lOOt-COC50 

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XXGOX^OCCCXXOCXOCXXXXXOO 


§  173.  In  diagram  No.  6,  the  upper  line  represents  the 
nominal  outstanding  debt;  the  next  line  its  coin  value  at  par; 
the  next  the  coin  value  received  by  the  Government  less  coin 
value  paid  on  the  principal,  and  the  lower  line,  coin  value  re- 
ceived pins  6  per  cent,  interest,  less  total  coin  value  paid  on 
principal  and  interest. 


Diagram  No.  6. 


' 

< 

-:' 

T 

1 

— 

— 

— 

— 

1- 

— 

28 

• 

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■ 

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r- 

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1 

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y 

[ 

26 

24 

Scale,    $200,  22 

000,000     to  20 

the  square  18 

from  bot-  16 

torn  line.     14 

12 

10 

8 

6 

4 

2 

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g 

X 

Coin  val.  of  debt  at  par . 


Com  value   received,  less 
val.  pd  on  princ 


Coin  val.  rec'd  plus  6  per 
ct.  comp.  int.  less  total 
coin  value  paid  ++++ 


202 


AMERICAN  FINANCES. 


In  Diagram  No.  7,  the  lines  counting  from  the  top,  as 
arranged  from  1870  to  1878,  are  as  follows:  The  first  line 
represents  the  nominal  debt;  the  second  the  merchandise  re- 
quired to  pay  it  in  coin;  the  third  the  merchandise  to  pay  it 
in  currenc}-;  the  fourth  the  merchandise  value  received  less 
merchandise  value  paid  on  the  principal;  the  fifth  merchan- 
dise value  received  plus  6  per  cent,  interest  less  total  amount 
paid  on  principal  and  interest.  The  scale  of  the  merchandise 
lines  is  5,000,000  tons  to  the  square. 


Currency 
seal  e. 1200- 
00(1,000  to 
the  square 
from  bot- 
tom line. 
Mclse. 
scale,  500,- 
000  tons  to 
square  fr 
bottom 
line. 


60 
55 
50 
45 
40 

30 
25 
20 
15 
10 
5 

28 

26 

24 

22 

20 

18 

16 

14 

12 

10 

8 

6 

4 

2 

"T~ 



1 

T 

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m 

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( 

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1 

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1 

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1 

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3 

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1 

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1 

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Ik 

1 

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m 

1 

Diagram  No.  7. 

Nominal  debt 

[Currency  scale.J 

JNIdse  required  to  pay  pub- 
lic debt  in  coin  x=x 

Mdse  required  to  pay  pub- 
lic debt  in  currency 

Mdse  tons  vai.  rec'd,  less 
ain't,  pd  on  princ 

Mdse  tons  vaiue  rec'd  plus 
(;  i)cr  cent  coinp.  int.  less 
total  amount  paid  +^++ 


S :;  ?3  ?2  S'  t2  !5  h:  K  P  ^  *"  ^"i  ^  "*""  '-^  f~ 


«:■  35  o 
I-  I-  00 
X  X  CO 


In  Diagram  No.  8,  the  upper  line  represents  the  total  debt 
outstanding;  the  space  between  it  and  the  second,  Class  A; 
the  next  space  Class  B;  the  next  Class  D,  and  the  lower  space 
Class  C.  The  vertical  dotted  lines  mark  the  inflation  and 
funding  periods. 

DiAGKAM  No.  8. 


c 

28 

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T 

r 

T 

r 

~ 

"> 

3 

r 

j~. 

1 

) 

.-  <- 

26 
24 
22 
20 
18 
16 

It 

10 

8 

6 

4 

• 

S 

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« 

1 

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-\ 

» 

f 

> 

—' 

V 

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» 

1 

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1 

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a  o 

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1 

1 

- 

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• 

t 

1  i 

I 

/ 

1  o 

f 

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/ 

r 

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1 

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1 

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1 

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2 

/y 

-r 

Z 

c 

1 

-* 

Scale,  §200,000,000  to  the  squre  be- 
tween lines. 


-  Legal  tender  notes  outstanding.. 

Payment  not  sjiecilied. 
Payable  in  currency. 


"  Payable  in  coin. 


'i  to  ts  o  ti  --o  CO  -o  o  t-  t-  r-  I-  ^-  i-  i-  i-  i-  i-  cc 

<»  00  X  -X  X  00  CC  00  OC  Oj  X  X  00  no  OC  00  X-  CC  CC  X  Xi 


TABLES  AND  DIAGRA2IS. 


203 


In  Diagram  No.  9,  the  lower  lines  represent  the  nominal 
revenues  and  disbursements,  and  the  upper  lines  their  mer- 
chandise value. 

Merchandise  value 


y>                -^                =-"^' 

t'^^-,^     ^^-.^^ 

/^N^^'^ 

5           ^---=--j 

-tH" — =p:"~  ■   ~  "-"^ 

ol  revenue. 


7 

G 

5 

4 

3  Nominal   revenue 

2     in  dollars. 

1 


\n  L-:  i.-  1-  »-^  L-; »--  ic  u-  o  CO  t::  :o  :o  o  c:?  :s  to  '^  ^  t-  r-  i-  i-  r-  i-  r-  i-  i-  ^-  .o 

CC  X  */:  X  X  X  X  Xi  00  X  00  X  OC  OC  GC  CC  CC  CC  CC  C/:  X  CC  CiC  X  GC  X  CC  CC  CC  X  X 


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//       I                     ' 

//         '               Y"~"~— -T/          '^ 

U:^j.44i^  INI  mnWi  Ht^h 

15 

14  Scale,  !i»l00,O()n.ooo, 
13     or  i,ooo,ouii  tons 
12     of  indse  to  the 
11      square. 
]0 
9 


Mdse  value  of  dis- 
bursements. 


t"  I   I  7  Nominal  disburse- 
ments in  dollars. 


DiAGR.\>i  No.  9. 


204  A3IERICAN   FINANCES. 

STAJ^DAPtD  TON  OF  MERCHANDISE— TABLE  NO.  1. 


CALE>'DAK 

Year. 

<D  CO 
Qi 

M 

05 

i 

1— ' 

-4-3 

M 

en 

t- 

gS 
o 

-hi 

c 
< 

3.05 
2.41 
3.94 
2.49 
1.93 
2.33 
2.89 
3.13 
2.65 
2.49 
2.33 
2.49 
2.25 
1.85 
1.81 
1.68 
1.93 
1.93 
1.69 
1.77 
1.93 
1.79 
1.93 
1.94 
2.01 
2.10 
1.94 
2.09 
1.73 
1.78 
1.85 
1.64 
1.84 
2.90 
3.86 
3.54 
3.46 
2.43 
2.93 
2.73 
2.10 
2.90 
1.61 
1.85 
1.61 
1.60 
1.50 
1.13 
1.17 
.77 
1.13 

c« 

.o 

00 

e 

o 

en 

CO 

o 
o 

s 

(^  — ' 

hH-f 

tr.y: 

rH 

o 

-hd 

o 

t> 
m 

cr! 

—  o 

re—' 

h-l 

s 

hH 

3.21 
3.46 
3.37 
2.89 
2.65 
2.73 
2.97 
3.13 
3.05 
3.37 
3.13 
3.29 
2.89 
2.65 
2.49 
2.41 
2.01 
2.33 
2.25 
2.41 
2.50 
2.71 
2.41 
3.06 
3.46 
3.54 
4  34 
4.66 
3.78 
3.78 
3.38 
3.14 
3.89 
4.67 
6.19 
5.63 
5.55 
4.92 
4.46 
4.82 
4.67 
4.50 
4.67 
4.50 
4.67 
4.59 
4.02 
3.94 

o  oo 

3.38 
3.74 

■■A 

n 

tH 

0) 

iA 

o 

1.82 
1.96 
1.77 
2.13 
2.03 
2.29 
2.99 
3.01 
3.64 
4.28 
4.10 
4.30 
3.25 
3.00 
3.54 
4.10 
3.36 
3.19 
2.90 
3.47 

O  OQ 

3.23 
3.36 
4.35 
5.49 
6.52 
6.77 
6.63 
3.70 
5.75 
5.39 
3.58 
3.89 
5.47 
7.40 
6.52 
7.40 
5.81 
5.94 
7.97 
9.17 
6.52 
5.64 
5.80 
4.91 
4.00 
5.55 
3.79 
4.()7 
4.59 
5.40 

X* 

6'"' 

m 

d 

Ci 

o 

2 
i^ 

h 

v: 

VI 

1830 

1831 

2.83 
2.61 
3.07 
3  1 3 

2.25 
2.41 
2.41 
2.73 
2.33 
2.49 
2.89 
2.89 
3.54 
2.97 
2.65 
1.85 
1.93 
1.27 
1.77 
2.09 
2.17 
2.49 
2.41 
2.25 
2.41 
2.23 
3.55 
2.98 
3.14 
3.62 
3  31 

3.64 
4.15 
4.40 
4.85 
4.12 
5.85 
6.27 
6.91 
5.66 
5..56 
3.50 
4.12 
3.92 
3.48 
3.12 
4.18 
4.34 
5.60 
4.19 
4.08 
4.08 
3.88 
4.50 
4.70 
5.60 
6.70 
4..58 
5.44 
5.18 
5.82 
5.11 
3.93 
3.81 
6.14 
10.40 
5.3S 
6.82 
7.74 
7.82 
6.15 
6.15 
5.05 
4.51 
4.09 
4.41 
4.02 
2.80 
3.19 
3.38 
3.30 
3.03 

1.73 
1.96 
2.02 
1.93 
1.69 
2.12 
2.75 
2.99 
2.57 
2.39 
1.79 
1.96 
1.71 
1.60 
1.48 
1.82 

i.(;o 

2.85 
1.91 
1.78 
1.79 
1.45 
1.69 
1.99 
2.89 
2.81 
2.17 
1.77 
1.44 
1.69 
1.57 
1.53 
1.39 
2.11 
3.05 
2.22 
2.74 
2.83 
2.49 
1.80 
1.70 
1.87 
1.93 
1.91 
1.81 
l.(i9 
1.61 
2.05 
1.49 
1.61 
1.02 

2.89 
2.S2 
2!81 
2.73 
2.75 
2.59 
3.37 
3.54 
2.97 
2.65 
2.33 
2.23 
1.88 
1.43 
2.09 
2.66 
2.50 
2.33 
2.01 
1.60 
1.45 
1.39 
l.(il 
2.13 
2.40 
2.04 
2.14 
2.11 
1.58 
1.72 
1.53 
1.43 
1.52 
2.50 
3.96 
3.06 
3.12 
2.81 
2.61 
2.57 
2.19 
2.22 
3;04 
2.87 
2.52 
2.26 
1.98 
1.71 
1.54 
1.69 
1.63 

1.96 
1.89 
1.96 
2.02 
1.86 
1.99 
2..57 
2.47 
2.34 
1.99 
1.60 
1.54 
1.28 
1.57 
1.86 
1.89 
1.80 
2.18 
1.54 
1.67 
1.77 
1.62 
2.00 
1.90 
1.55 
2.03 
3.78 
3.70 
2.52 
2.80 
2.93 
2.74 
2.59 
.3.12 
6.11 
6.92 
6.14 
5.96 
5.34 
5.47 
5.95 
4.02 
4.31 
5.09 
4.67 
4.31 
3.80 
3.19 
2.77 
2.49 
2.88 

2.12 
2.41 
3.02 
2.51 
2.44 
3.48 
3.70 
3.70 
2.73 
2.89 
2.16 
2.80 
2.51 
1.96 
2.06 
2.57 
2.44 
3.34 
2.67 
2.64 
2.83 
4.53 
5.47 
3.00 
3.86 
3.99 
2.75 
3.41 
3.00 
3.03 
2.70 
2.48 
3.12 
4.60 
6.05 
4.34 
4.50 
5.19 
4.84 
4.70 
3.90 
3.61 
3.19 
3.22 
2.93 
3.02 
2.35 
2.19 
2.38 
2.58 
2.54 

4.26 
4  37 

1832 

1833 

4.30 
4  66 

1834 

2.01 
3  57 

4  46 

]835 

5  14 

1836  

1837 

3.66 
4.18 
4.82 
4.58 
3.94 

7.70 
6  51 

1838 

6  75 

1839 

1840 

6.11 
4  66 

1841 

2.27 
2.33 
2.31 
1.88 
2.49 
2.37 
3  54 

3  57 

1842 

1843 

1844 

2.73 
3.05 
3  02 

1845 

1846 

1847  .  . , 

3.57 
3.70 
4  22 

1848 

3  38 

3  54 

1849 

3.70 

2.85 
2.68 
4.03 
2.90 
3.38 
3.58 
3->3 

3  88 

1850 

1851 

1852 

1853 

1854 

1855 

1856 

3.54 
4.40 
5.52 
5.28 
4.50 
5.64 
5  99 

1857 

1858 

1859 

I860 

3.94 
3.38 
2.37 
1.61 
1.81 
2.29 
2.25 

3.54 
3.06 
3.30 
2.50 
2.41 
2.68 
3.54 
4.74 
4.67 
6.84 
5.08 
7.12 
5.71 
5.15 
4.34 
4.75 
5.47 
4.59 
3.62 
3.8(i 
2.98 
2.09 
1.67 
3.00 

6.79 
5.53 
5.27 
5  79 

1861 

4  87 

1862 

3  89 

1863 

1864 

4.79 
10.10 
8.13 
8.81 
6.92 
8.16 
6  93 

1865 

1866 

1867 

1868... 

3.70 
5.15 
6.45 
5.83 

1869 

3.46 
3.38 
4.19 

2.58 
3.22 
3  17 

1870 

1871 

1872 

1873 

1874 

8.05 
5.77 
4.63 
5.15 
6  12 

1875 

1876 

2.90 
3  14 

6.56 
6  11 

1877 

3.34 

4  67 

1878 

3.62 

3  42 

1879 

3.38 

3  35 

1880 

4.43 

3.60 

TABLES  AND  DIAGRAMS. 


205- 


STAND AED  TO^  OF  MERCHANDISE— COXTII^UED. 


Calendar 
Year. 


1830. 

1831. 

1832. 

1833. 

1834. 

1835. 

1836 

1837. 

1838. 

1839. 

1840. 

1841. 

1842. 

1843. 

1844. 

1845. 

1846. 

1847. 

1848. 

1849. 

18.50. 

1851., 

1852. . 

1853., 

1854., 

1855., 

1856. . 

1857.. 

1858.. 

1859.. 

I860., 

1861 . . 

1862.. 

1863.. 

1864.. 

1865.. 

1866.. 

1867.. 

1868.. 

1869.. 

1870. . 

1871.. 

1872.. 

1873.. 

1874.. 

1875.. 

1876.. 

1877.. 

1878.. 

1879.. 

1880. . 


rt 


1.77 
2.09 
2.25 
2.09 
1.S9 

2.; 

2.; 

2.61 
2.77 
2.57 
2.17 
2  '>5 
L71 
1..57 
1.88 
2.37 
2.37 
7.04 
6.68 
2.01 
1.81 
1.86 
2.50 
2.48 
2.82 
2.70 
2.75 
2.78 
2.09 
2.41 
2.45 
8.29 
4.41 
3.94 
4.0-2 
7.64 
8.61 
6.76 
6.31 
5.55 
4.83 
5.31 
5.47 
5.31 
5.39 
4.83 
4.02 
3.86 
4.34 
4.34 
3.57 


o 

H 


1.60 
1.44 
1.44 

1.77 
1.93 
2.73 
2.57 
1.93 
2.73 
3.86 
3.05 
2.89 
1.77 
1.44 
1.29 
1.44 
1.44 
1.60 
1.77 
1.93 
3.06 
2.72 
1.93 
2.26 
2.58 
3.00 
3..54 
4.34 
3.86 
2.90 
2.58 
3.06 
5..5S 
7.08 
10.14 
8.37 
4.19 
4.04 
3.72 
3.41 
3.06 
2.74 
4.02 
4.02 
5.14 
5.95 
4.19 
3.71 
1.81 
1.31 
2.84 


3.46 

3.89 

3.97 

3.91 

3.41 

4.05 

5.61 

5.84 

5.39 

4.05 

3.54 

3.86 

3.42 

3.28 

4.72 

3.61 

3.46 

4.82 

3.70 

4.10 

4.19 

3.45 

3..50 

4.86 

6.84 

7.67 

5.60 

5.14 

4..34 

4.74 

4.91 

4.50 

4.30 

5.23 

7.20 

5.03 

9.10 

9.19 

8.55 

5.82 

5.31 

5.55 

6.03 

6.11 

3.66 

3.69 

3.40 

4.68 

3.76 

3.41 

3.92 


1.85 

2.93 

2.9 

2.49 

2.41 

2.61 

3.41 

3.13 

2.73 

3.08 

2.21 

2.01 

1.60 

1.69 

2.49 

2.17 

1.85 

2.17 

2.01 

2.29 

2^61 

2.85 

2.73 

3.30| 

2.61 

2.33 

2.75 

2.97 

2.77 

3.18 

2.97 

2.70 

3.57 

5.11 

7.43 

5.90 

2.09 

4.84 

3.88 

4.06 

3.15 

3.82 

4.50 

3.70 

3.37 

3.46 

2.73 

3.00 

2.13 

1.84 

2.92 


, —  VI 


CO 


38.44 

40.80 

43.66 

39.12 

38.91 

46.30 

55.68 

.55.97 

54.34 

52.84 

43.16 

41.93 

3.5.18 

32.25 

35..50 

39.23 

37.34 

49.63 

42.65 

39.58 

10.20 

40.79 

46.73 

47.13 

53.13 

53.33 

55.64 

59.31 

47.96 

49.94 

47.27 

43.11 

48.83 

63.45 

94.02 

81.08 

84.52 

80.97 

80.00 

74.45 

68.76 

62.41 

60.91 

62.31 

58.97 

57.49 

51.06 

47.42 

41.95 

.39.71 

46.25 


i£5 
"en  O 

5S..  . 


1.19 

1.13 

1.05 

1.09 

1.18 

.99 

.82 

.82 

.85 

.87 

1.07 

1.10 

1.30 

1.41 

1.29 

1.17 

1.23 

.92 

1.08 

1.16 

1.14 

1.13 

.99 

.98 

.87 

.79 

.83 

.78 

.95 

,92 

.97 

1.07 

.94 

.73 

.49 

.57 

.54 

.56 

.58 

.62 

.67 

.73 

.76 

.73 

.78 

.80 

.90 

.97 

1.10 

1.16 

1.00 


o  o 


o 


43.05 
43.78 
46.25 
51.56 
60.00 
58.62 
57.28 
55.98 
59.82 
.58  85 
54.21 
54.83 
53.07 
50.01 
45.75 
45.28 
41.53 
39.71 
46.25 


1.07 

1.05 

1.00 

.89 

.77 

.79 

.81 

.82 

.77 

.82 

.86 

.86 

.87 

.92 

1.02 

1.02 

1.11 

1.16 

1.00 


1.13 
1.45 
2.03 
1.57 
1.41 
1.38 
1.40 

-!  O'D 
L.OO 

1.15 
1.12 
1.12 
1.14 
1.11 
1.15 
1.12 
1.05 
1.01 
1.00 
1.00 


,88.3 

68.9 

.49.2 

63.6 

71 

72.4 

71.6 

.75.2 

87 

89.5 

.89 

.87.9 

87.9 

86.9 

89.6 

95.5 

.99. 

1.00 

1.00 


o 
O 


1.05 

1.03 

1.04 

1.04 

1.04 

1.03 

1.03 

1.03 

1.02 

1.02 

1.02 

1.02 

1.02 

1.00 

.99 

.96 

.89 

.91 

.92 

.85 


1.01 
1.10 

1.11 

1.09 
1.04 
.92 
.79 
.81 
.83 
.84 
.79 
.84 
.88 
.86 
.86 
.88 
.90 
.93 
1.02 
.99 


206 


AMERICAN  FINANCES, 


INTEENATIONAL  Til  ADE— MOVEMENTS  OE  MERCHAN- 
DISE, COIN,  AND  BULLION.— TABLE  NO.  2. 

Millions  and  thousands— hundreds  omitted. 


Fiscal 
Year. 


1830 

1831 

1832 

1833 

1834 

1835 

183G 

1837...   . 

1838 

1839 

1840 

1841  .... 

1842 

1843..... 
1844..... 
1845  .... 

1846 

1847..... 
1848..... 

1849 

1850 

1851..... 

1852 

1853 

1854 

1855 

1856 

1857 

1858 

1859 

1860  .... 

1861 

1862 

1863 

1864...   . 

1865 

1866  .... 
18*>7..... 
1868...   . 

1869 

1870 

1871 

1872 

1873 

1874 

1875 

1876 

1877 

1878 

1879 

1880 


Merchant>ise. 


fe5 


49,575 
82,808 
75,327 
83,470 
86,973 
122,007 
158,811 
113,310 
86,552 
145.87U 
86,2.^0 
114,776 
87,996 
37,294 
96,390 
105,599 
110,048 
116,2."i7 
140,G.il 
132,505 
164.034 
200,476 
195,387 
250,157 
275,991 
231,650 
295,650 
333,511 
242,678 
316,823 
336,28' 
274,656 
178,330 
225,375 
301,113 
209,656 
423,470 
381,043 
344,873 
406,555 
419,803 
505,802 
610,904 
624,089 
550,556 
518,846 
445,938 
438,518 
422,896 
4.'53,679 
tC35,144 


P. 
a/ 


58,524 

59.218 

61,726 

69,950 

80,623 

100,459 

106,570 

94,281 

95,560 

101,625 

111,660 

103,636 

91,799 

77.686 

99,532 

98,455 

101,718 

1-50,575 

130,203 

131,711 

134,900 

178,620 

154,931 

189,869 

215,328 

192,751 

266,438 

278,906 

251,351 

278,392 

316,242 

204,899 

179,644 

186,003 

143,.504 

136,940 

337.518 

279,786 

269,389 

275,166 

376,617 

428,.39S 

428,487 

505,033 

579,633 

514,880 

536,089 

602,721 

691,219 

711,499 

t797.,328 


23,590 
13,601 
13,520 
6,3.50 
21, .548 
52,241 
19,031 


44,245 
11,140 


7,144 
8,330 


10,448 
854 
29,134 
21,856 
40,456 
60,288 
60,663 
38,899 
29,212 
54,605 


38,431 
20,040 
69,757 


39,372 

157,609 

72,716 

85,952 

101.25 

75,484 

131,389 

43,186 

77,404 

182,417 

119,656 

3J966 


to  S 


8,949 


9.008 
25,410 


3,803 

40,392 

3,142 


34,318 


8,673 


1,314 


29,077 


90,151 
16-1,203 
268,323 

277,820 
162,1841 


Coin  and  Bullion. 


8,155 

7,305 

5,907 

7,070 

17,911 

13,131 

13,400 

10,516 

17,74 r 

5,595 

8.882 

4,9'<8 

4,087 

22,.320 

5,830 

4,070 

3,777 

24,121 

6,.360 

6,651 

4,628 

5,4.53 

5,505 

4,201 

(5,939 

3,6.59 

4,207 

12,461 

19,274 

7,4:m 

8,550 
46,339 
16,415 

9,584 
13,115 

9,810 
10,700 
j22,070 
14,188 
19,807 
26,419 
21,270 
13.743 
21,480 
28,454 
20,900 
15,9.36 
40,774 
29,831 
20,296 
93.178 


H 


252 
4,460 

15,8:55 
6.(S4 
9,077 
4,.541 

14,240 


466 


20,800 
377 


22,215 


1,24: 


2,178 

9,014 

5,655 

2,610 

2,076 

6.477 

4,323 

5,975 

3,507 

8,776 

8,416 
10,034 

4,812 

1,.520 

5,453 

8,60(i 

3.904 

1,906 
15,841 

5,404 

7,522 
29,472 
42,673 
27,486 
41,280 
56,440 
45,745 
69.1.36 
52,632 
6.3,887 
66,546 
29,790 
36,887 
(>4,156 
105,395 
(57,643 
86.043 
60,868 
93,783 
57,1371 
58,1.55, 
98,4-121 
79.878 
84,608 
66.629 
92,132 
.56,."i05 
.56,162 
33,732 
24,997 
18,926174,252 


5tD 


5,977 


16,549 


f-r. 


1,709 


3,181 


5,046 
725 


4,536 
127 


9,481 


2,894 
24,019 
37,168 
23.285 
34;.34lj 
52,587| 
41,5.38; 
5(i,6i5 

.3:;;358 

56,453 
57,996 


20,472 
.54,572 
92.280 
.57, s::. 
75.343 
38,798 
79,59.' 
37,,330 
31,736 
77,172 
66,135 
6,3,128 
38,175 
71,232, 
40.569: 
15..388J 
3,911 
4,701 


Coin,    Btri.,- 

LION  &MER- 
CHANDISB. 


.3® 

o  '-' 
H 

56,490 
83.158 
76,990 
88.296 
103,209 
129.391 
168,234 
119,134 
101,265 
144,598 
88,951 
112,477 
88,441 
58,201 
96,950 
101,908 
110,345 
138,534 
13.3.87I 
134,768 
163,186 
194,.527 
195,653 
250,420 
1279,712 
;233,020 
1298,260 
;336,915 
251,727 
317,873 
i335,233 
[314,005 
|1 88,902 
'226,797 
'3119.306 
216,441 
'4:50,770 
1,397,222 
349,024 
1412,141 
431,950 
[513,031 
[617,569 
(535,467 
1572,081 
1.531,472 
455,408 
4(;6,2(;5 

U(:.t>4(t 

44(5.5:5;! 
7u9.396 


t  Estimated  from  Keport  of  Bureau  of  Statistics,  May,  1880. 


a. 

■A 

<a 

g 

59,462 

61,277 

63,137 

70,.316 

81,024 

101,189 

106,916 

95,564 

96,033 

103,534 

113,895 

106,383 

92,969 

77,793 

99,715 

99,300 

102,142 

150.(537 

132.<;o4 

1.32.(507 

13(5.946 

196.690 

192.;568 

21:;.417 

253.390 

246,708 

.310.5S6 

338,9.s5 

293,758 

335,895 

373,189 

228,699 

210,688 

241,987 

24:s,977 

201,558 

420,161 

.3.34,763 

:553,145 

318,082 

420,.500 

512,802 

.501,285 

578,9:59 

(5:i9,3a3 

.598,738 

58(;.]28 

645,856 

18,274 

29.0.54 

97,328 


TABLES  AND  VIAURAMS. 


207 


INTERNATIONAL  TRADE— MO^^EMENTS  OF  MERCHAN- 
DISE, COIN,  AND  BULLION.— TABLE  NO.  2  (Cont.) 

Millions  and  thousands— hundreds  omitted. 


Total  Bal- 
ance. 

Movem't  of 
Coin  axd 
Bullion. 

American  Pro- 
duction. 

Fiscal 
Year. 

c 
ai 

1 

o 
^  . 

5,977 

«  C 

2 
0 

0 

> 

I 

Ig30 

2,972 

24,944  1 

1 

1831 

21,881 
13.853 
17.980 
22,185 
28,2U2 
61,318 
23,571 
5,232 
41,064 

1,709 

IgS"? 

252 
4,400 

15,8.35 
6,054 
9,077 
4,.541 

14,240 

1833 

1834 

1835 

235,286 

47.45 

18.36 

1 1^37 . . . 

■ 

1838 

1839 

3,181 

1840 



460 

' 

1841  . . . 

6,094 

5,040 
725 

1842 

4  528  r 

45,735 

37.60 

'20^806 
377 

1843 

19.:,92 
2,765. 

12,103 

"2,'l63  - 

1. 3,688" 
12,326 
2,070 
42,031 
18,022  ■ 
37,956 

21  ,'786 
15,200 , 

4,lli 
1 

67,'252° 
67,266 
130,720 
179,591   • 
272,234 
282,521 
87,932 

1844 

1S4.T  . . . 

2,608 
8,203 

3,528 

i,'l75 

6,353 
1,840 

6,072 
35,180 

"\\,iik 

i9,'5'9'5 

10,672 

1,385 

'  '6,'03'7 

1.008 
1,239 
889 
10,000 
40,000 
50,000 
55,000 
00,000 
65,000 
60.000 
.55,000 
55,000 
55.000 
50,000 
50,000 
16,000 
43,000 
39,200 
40,000 
46,100 
53,225 
53,500 
51,725 
48,000 
49,500 
50,000 
43,500 
36,000 
36,000 
33,490 
33,467 
39,929 
46,897 
51,200 
38,899 

' ' '  "506 

500 

500 

500 

500 

500 

500 

500 

500 

500 

100 

150 

2,000 

4,500 

8,500 

11,000 

11,250 

10,000 

13,500 

12,000 

12,000 

10,000 

23,000 

28,000 

35,750 

37.324 

31 ,727 

38,783 

39,793 

45,281 

40,812 

1,008 
1,239 

1840 

881 

23,104 

519 

41,747 

47,006 

31,481 

23,332 

42,215 

26,159 

2,913 

3,962 

1847 

880 

1848 

967 

2,101 

26,240 

10,000 
40,500 

l84y 

1850 

50,500 

1851 

93,758 

44.31 

55,500 

1852 

3,288 
37,003 
26,322 

60,500 

1853. ... 

65,500 

1854 

60,500 

1855 

55,.50O 

1856 

55,500 

1857 

55,500 

1858 

17,142 

50,500 

1859 

76,771 

55.98 

50,100 

I860  

46,150 

1861 

86,306 

61,549 
23,229 

45,000 

1862 

43,700 

1863 

'05,329 
14,883 
10,009 
62,459 

48,500 

1864 

57,100 

1865 

6,642 

"26,427 

'24,176 
.34,264 

'"8,'o'22 
32,040 

64,475 

1866  

63,500 

1867 

05,225 

1868 

427,722 

^58.44 
74.94 

60,000 

1869 

94,059 

11,450 

232 

116,284 

56,528 

01,500 

1870 

00.000 

1871 

06,500 

1872 

64,000 

1873 

71,750 

1874 

70,815 

1875 

65,195 

1876 

1,087,516 

$44.75 
49.31 

38,143 
71,302 
92,576 
75,010 

§74,252 

78,712 

1877 

86,690 

1878 

96,487 

1879 

79,711 

1880 

X  Coin.       §  Imports,  add  production  for  the  year. 


208 


AMERICAN  FINANCES. 


CO 

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O 


H 

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Q 

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o  o  o  o 

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TABLES  AND  DIAGRAMS. 


209 


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TABLES  AND  DIAGRAMS. 


217 


TABLE  KO.  9. 


1850. 

1851. 

1852. 

1853. 

1854. 

1855. 

1856. 

1857. 

1858. 

1859. 

1860. 

1861 

1862 

1863. 

1864. 

1865. 

1866. 

1867. 

1868. 

1869. 

1870. 

1871. 

1872. 

1873. 

1874. 

1875. 

1876 

1877. 

1878. 

1879. 


REVENUES. 


Nominal.        Tons  mdse. 


.S43,.-92,S88 

52,555,039 

49,846,815 

61,587,031 

73,800,341 

65,350,574 

74,056,699 

6S.t)65,312 

46,655,365 

.52,777,107 

56,054.599 

41,476,299 

51,919,261 

112,094,945 

243,412,971 

322,031,158 

519,949,564 

462,846,679 

376,434,453 

357,188,2.56 

395,959,833 

374,431,104 

364,394,229 

322,177,673 

299,941,090 

284,020,771 

290,066,584 

281,000,642 

257,446,776 

272,322,136 


1,084,400 
1,288,429 
1,066,698 
1,306,748 
1.389,052 
1,120,3.59 
1,330,997 
1,162,794 

971,986 
1.056,810 
1,185.740 

962,103 
1,063,265 
1,766,665 
2,588,948 
3,971,770 
6,151,793 
5,716,273 
4,705.430 
4,797,693 
5,758,570 
5,999,536 
5,98i5,502 
5.170,561 
5,086,333 
4,940,351 
5,680,896 
5,925,783 
6,113,1.53 
0,857,772 


disburse:ments. 

(War,  Navy,  Indians,  Pen- 
sions, Miscellaneous.) 


Nominal. 


$37,165,990 

44,0.54,717 

40,389,954 

44,078,156 

51,907,528 

56,316,197 

66,772,527 

66,041,143 

72,330,437 

66,355,950 

60.656,7.54 

62,610,055 

456,379,896 

694,004,575 

811,283,679 

1,217,704,199 

385,954,731 

202,948,733 

229,915,088 

190,496,354 

164,421,507 

157,583,827 

153,201,856 

180,488,636 

194,118,985 

171,529,848 

164,8.57,813 

144,209,963 

134,463,452 

161,610,934 


Tons  nulse. 


924,527 

1,080,()37 

964,326 

935,246 

97.^120 

965,475 

1,200,081 

1,113.491 

l,.50(i.S84 

1,32S.713 

1,27<».141 

1,452,522. 

9,346.301 

10,937,81  S 

8,628,,S41 

15,018,552 

4,506,429 

2,506,482 

2,873,938. 

2,558,71.5 

2,391,237 

2,524,977 

2,51.5.216 

2,89(5,636 

3,291,826 

2,983.59-1: 

3,228,707 

3,041.121 

3,205,326 

4,07(1,000- 


■216 


AMERICAN  FINANCES. 


DIGEST   OF  LEGTSLATIOISr   RELATIIS'G  TO  THE  PUBLIC 
DEBT  A^V>  CURRENCY— ShowixNG  the  Inflation,  Con- 

TB ACTION.  AND  EUNDING  SCHEMES.— TABLE  iSTO.  8. 


Fiscal, 

V  EAR. 


I860. . . . 
1861.,.. 

1862... 
1863... 

1864... 
1865... 

1866  .. 

1867... 

1868... 
1869 . . . 


18T0.. 

1871 . . 
1872.. 
1873.. 


1874. 
1875. 

1876. 
1877. 
1878. 


1879. 
1880. 


Banks  in  control  of  the  currency ;  and  Government  limited  to  coin 
Outst;inaing  GoveriiHient  debt 

War  coniiuenced.    Government  l>()rrowed  $150,000,000  ;  issued  circulating 

notes  :  suspended  coin  payments 

First  ttiLod— Inflation  o/  Gurernment  Currency.     Borrowing. 
Original  Cnntracta. 

Legal-tendere  issued  and  paid  lor  all  debts,  except  duties  and  interest  on 
public  debt ;  $300,000,000  authorized 

Legal -tenders  paid  in  settlement  of  previous  coin  contracts  and  notes  : 
additional  issue  of  $150,00o,ooo  authorized  ;  National  Bank  act  pas.sed  ; 
$300,000,000  bank  paper  authorized  and  made  payable  for  public  con- 
tracts and  notes 

10.40  Bonds  issued,  payable  in  coin  ;  and  short-time  notes,  payable,  princi- 
pal and  interest,  in  currency  ;  |400,oOO,ooo  of  said  notes  legal  tender 

Secretary  of  Treasury  authorized  to  change  all  contracts  between  the  Gov- 
einment  and  its  creditors  at  his  pleasure  ;  also  to  reduce  the  legal-ten- 
der paper  of  the  Government 

Close  of  the  war  and  commencement  of  second  period.    Secretary  hoards 

Government  currency,  and  makes  way  lor  bank  currency 

Second  Period--Contraction  of  Gocernmcnt  Currency:  payings- 
change  of  contract  from  paper  to  coin  payment;  first  funding 
scheme. 

Secretary  transfers  large  amounts  of  Government  paper  from  Class  D  to 
Class  B,  increasing  and  changing  the  value  of  the  interest  paid,  and 
changing  the  contract  from  specific  to  indefinite 

Keduces  the  currency,  and  appreciates  the  value  of  all  contracts  to  pay 
money '. 

Congress  declares  its  intention  to  pay  all  contracts  of  Class  B  in  coin,  ihas 
repudiating  the  original  contract  on  all  paper  funded  from  Class  D,  and 

reversing  tlie  construction  of  the  act  of  Feb.  25,  18G2 

Third  l^eriod- -ContracLion  of  Coin;  Coin  Payment;  Change  of  Con- 
tract from  "  Coirt"  to  Coin  of  "present  standard  value:  second 
funding  scheme. 

Congress  authorizes  funding  the  entire  debt  into  bonds  payable  in 
"coin  of  present  standard  vaiue,"  and  exempt  from  Federal  taxation. . 

Also  authorizes  the  payment  of  5-20  bonds  at  par  in  coin 


Congress  demonetizes  silver,  thereby  appreciating  the  coin  about  38  per 
cent,  above  the  standard  of  1870 


Congress  agrees  to  pay  coin  for  greenbacks  on  and  after  Jan.  l,  1879 ; 
changes  fractional  currency  from  non-interest  to  interest  debt 


Increa.ses  the  public  debt  by  borrowing  coin  and  is.sumg  bonds  therefor 

Hoards  the  coin,  thus  decreasing  the  supply  and  further  appreciating  its 

value 

Fourth  Period— Resumption ;  Inflation;  Banks  Again  in  Control  of 

tilt:  Volume  of  Currencii. 

Secretary  receives  the  greenback  for  duties  m  violation  of  law,  in  order  to 

maintain  resumption 

Secretary  (lisl)urses  $l8."j,743,!i(i6  from  tlie  Treasury,  pays  off  .$214,778,490  of 

publfc  debt,  and  the  banks  inflate  .$20,000,000,  thus  reducing  tlie  value 

of  money  abont  16  per  cent 


TABLED   AND   DIAGRAMS. 


219 


DIGEST  OF  LEGISLATION  EELATIXG  TO  THE  PUBLIC 
DEBT  AND  CURRENCY— Showing  the  Inflation,  Con- 
traction, AND  Funding  Schemes.— Table  No.  8  (Coiit.). 


Outstanding  Faper  of  Gov't,  Classified  According  to  Autliorizing  Act. 


Kef'nce 
jium'rs. 
Year. 

I860.... 


Class  A. 
Included  u\ 
Classes  B  and 
D. 


1861.... 

1862.... 

1863.... 
1864.... 

1865. . . . 
1866.... 


1867... 
1868... 

1869... 


1870. . . . 
1871  ... 
1872... 

1873.... 
1874.... 

T875.... 
T876.... 
1877.... 

1878.... 


1879.... 
1880.... 


3-6-9-11-12-14 


Class  B. 
Payment  of  the 
principal  not 
specified.  In- 
terest in  coin. 


124,550,325 

§  149,660,000 

C  t  411.190,064 
X  623,325,996 

t  515,505,107 
t  590,428,614 


t  523,817,662 
t  417,485,976 

t  391.457,558 


t  398..38G,122 
J  397,G4(),4.'"i5 
i  399,205,173 

t  401,500,8.37 
t  428,5011,862 

t  418,451,876 
i  404,719,263 
i  380,623,786 

t  363,656,486 


1  362,930,366 

!  362,657,954 


l-2-t3-t4-5-17 
20-21-22-23 

II  64,769.703 

II  267,540,034 

§  230,706,725 

§  586,231,403 
§  1,090.117,797 

§  1,155,736,593 
§  1,234,639,243 


§  1,607,679,734 
§  2,013,768,618 

§  2,051,766,327 


2.070,281,845 
1,913,.378,320 
1,880,887,245 

1,631,.526,145 
1,522,883,345 

1,412,346,625 
1,283,280,979 
1,155,708,227 

1,015,602,161 


I  619,147,660 
I  524,726,086 


Class  C. 
Principal     and 
interest  both 
in  coin. 


Class  D. 
Principal     and 
interest  both 
in  currency. 


10-13-15-16-25 
26-27-30 


II  116,010,023 

!|  247,770,100 
J  260,814,780 


269,499,370 
291,127,540 

303,939,440 


II  307,244,520 
II  351,742,3.50 
11  504,003,100 

II  511,319,000 
11  609,209,751 

i|  704,615,6.50 
11  815,113,200 
II  959,579,250 

1,161,223,650 


I  1,667,157,310 

II  1.547,075,550 


+3-1-4-7-8-9-11 
12-14-18-19-24 


t  283,504,645 

J  512,561,776 
t  534,562,667 

X  1,277,828,332 
X  1,281,929,854 


X  800,257,910 
X  302,335,805 

X  242,2.59,868 


X  102,778,432 
X  88,090,661 
i  68,300,883 

X  59,907,847 
X  00,837,072 

X  56,907,250 
X  49,160,887 
X  35,053,914 

X  31.162,480 


1  30,425,560 
1  30,150,.398 


Hoarding 

in  the  U.  S. 

Treiisury. 


32,979,530 
30,963,857 

46,964,304 

36,523,046 
134,433,738 

33,933,657 
165,301,654 


198,076,537 
158,936,082 

183,781,985 


177,604,116 
138,019,122 
134,666,001 

159,293.673 
178,833.339 

172.804,001 
149,909,377 
214,887,645 

286,591,453 


386,832,588 
201 ,088,622 


c  Made  payable  in  bank  notes.    *  Made  payable  in  coin  by  resumption. 

+  3  Transferred  to  Class  D  by  the  act  of  Feb.  25.  1862. 

+  4  Construed  to  be  so  transferred  by  same  act.    See  page  138. 

X  Payable  in  currency. 

§  Manner  of  payment  in  dispute. 

f  Payable  in  co'iii. 


o 


APPENDIX. 


TJ.  S.  FINANCIAL  LEQISLATIOS. 
—J — t, — J— 

The  Statntes  Relating  to  Coinage,  Loans,  and  the  Currency  Passed 

Since  1861. 


THE  ACT  OF  JULY  17,  1861. 

[Under  this  act  were  issued  the  6  per  cent,  bonds  now  known 
as  "The  Loan  of  July  and  August,  1861,"  "The  Seven-thirties  of 
1861,"  and  "  The  Demand  Xotes."]    [2, 3,  4.] 
An  Act  to  Authorize  iv  National  Loan,  and  for  Other  Purposes.— 

Yol.  XIL  ,  p.  259,  Stat,  at  Large. 

Section  i.  That  the  Secretary  of  the  Treasury  be,  and  he  is 
hereby,  autliorized  to  borrow  on  the  credit  of  the  United  States, 
within  twelve  montlis  from  the  passage  of  this  act,  a  sum  not  ex- 
ceeding two  hundred  and  fifty  millions  of  dollars,  or  so  much 
thereof  as  he  may  deem  necessary  for  the  public  service,  for 
which  he  is  authorized  to  issue  coupon  bonds,  or  registered  bonds, 
or  Treasury  notes,  in  such  proportions  of  each  as  he  may  deem  ad- 
visable; the  bonds  to  bear  interest  not  exceeding  seven  per  centum 
perannum,  payable  semi-annually,  irredeemable  for  twenty  years, 
and  after  that  period  redeemable  at  the  pleasure  of  the  United 
States ;  and  the  Treasury  notes  to  be  of  any  denomination  fixed  (4) 
by  the  Secretary  of  the  Treasury,  not  less  than  $50,  to  be  payable 
three  years  after  date,  with  interest  at  the  rate  of  7  3-10  per  centum 
per  annum,  payable  semi-annually.  And  the  Secretary  of  the  (3) 
Treasury  may  also  issue  in  exchange  for  coin,  and  as  part  of  the 
above  loan,  or  may  pay  for  salaries  or  other  dues  from  the  United 
States,  Treasury  notes  of  a  less  denomination  than  $50,  not  bearing 
interest,  but  payable  on  demand  by  the  Assistant  Treasurers  of 
the  United  States  at  Philadelphia,  New  York,  or  Boston,  or  Treas- 
ury notes  bearing  interest  at  the  rate  of  3  65-100  per  centum,  pay- 
able in  one  year  from  date,  and  exchangeable  at  any  time  for 
Treasury  notes  for  $50  and  upwards,  issuable  under  the  authority 

229 


230  APrEXDIX. 

of  this  act,  and  bearing  interest  as  specifled  above:  Provided^ 
That  no  excliange  of  such  notes  in  any  less  amount  than  ."$100  shall 
be  made  at  any  one  time :  And  2)rovided  further,  That  no  Treas- 
ury notes  shall  be  issued  of  a  less  denomination  than  $10,  and 
that  the  whole  amount  of  Treasury  notes,  not  bearing  interest^ 
issued  under  the  authority  of  this  act,  shall  not  exceed  $50,000,000. 

Sec.  2  is  devoted  to  prescribing  liow  the  various  notes  and  bonds 
shall  be  signed,  issued,  and  made  transferable. 

Sec.  3.  And  be  it  further  enacted,  That  the  Secretary  oi  tne 
Treasury  shall  cause  books  to  be  opened  for  subscription  to  the 
Treasury  notes  for  $50  and  upwards  at  such  places  as  he  may 
designate  in  the  United  States,  and  under  such  rules  and  regula- 
tions as  he  may  prescribe,  to  be  superintended  by  the  Assistant 
Treasurers  of  the  United  States  at  their  respective  localities,  and 
at  other  places,  by  such  depositaries,  postmasters,  and  other  per- 
sons as  he  may  designate,  notice  thereof  being  given  in  at  least 
two  daily  papers  of  tins  city,  and  in  one  or  more  puljlic  news- 
papers published  in  the  several  places  where  subscription  books 
may  be  opened;  and  subscriptions  for  such  notes  may  be  received 
from  all  persons  who  may  desire  to  subscribe,  any  law  to  the  con- 
trary notwithstanding ;  and  if  a  larger  amount  shall  be  subscribed 
in  the  aggregate  than  is  required  at  one  time,  the  Secretary  of  the 
Treasury  is  authorized  to  receive  the  same,  should  he  deem  it  ad- 
vantageous to  the  public  interest ;  and  if  not,  he  shall  accept  the 
amount  required  by  giving  the  preference  to  the  smaller  subscrip- 
tions ;  [after  providing  for  compensation  for  the  officers  receiving 
subscriptions,  and  for  the  receipt  of  the  moneys  realized  there- 
from, the  act  continues:]  And  the  Secretary  of  the  Treasury  is 
also  authorized,  if  he  shall  deem  it  expedient,  before  opening  books- 
of  subscription  as  above  provided,  to  exchange  for  coin,  or  pay 
for  public  dues  or  for  Treasury  notes  of  the  issue  of  23d  of  Decem- 
ber, 1857,  and  falling  due  on  the  30th  of  June,  1861,  or  for  Treasury 
notes  issued  and  taken  in  exchange  for  such  notes,  any  amount  of 
said  Treasury  notes  for  $50  or  upwards,  not  exceeding  $100,000,000. 

Sec.  4.  provides  that  proposals  for  the  loan  shall  be  published, 
and  the  most  favorable  offers  accepted,  but  at  not  less  than  par. 

Sec.  5.  provides  that  a  portion  of  this  loan  not  exceeding  $100,- 
000,000  may  be  negotiated  in  a  foreign  country,  and  prescribes  the 
regulations  therefor. 

Sec.  6.  That  whenever  any  Treasury  notes  of  a  denomination  (3> 
less  than  $50,  authorized  to  be  issued  by  this  act,  shall  have  been 
redeemed,  the  Secretary  of  the  Treasury  may  reissue  the  same  or 
may  cancel  tliem  and  issue  new  notes  to  an  equal  amount.  Pro- 
vided, That  the  aggregate  amount  of  bonds  and  Treasury  notes 
issued  under  the  foregoing  provisions  of  this  act  shall  never  ex- 
ceed the  full  amount  authorized  by  the  lirst  section  of  this  act; 


DIGEST  Ol-'  KlNACNi:  LAWS.  231 

and  the  power  to  issue  or  reissue  such  notes  shall  cease  and  de- 
termine after  the  31st  of  December,  18(52. 

Sec,  7.  That  the  Secretary  of  the  Treasury-  is  hereby  authorized^ 
whenever  he  shall  deem  it  expedient,  to  issue  in  exchange  for  coin^ 
or  in  payment  of  public  dues,  Treasury  notes  of  any  of  the  de- 
nominations hereinbefore  specified,  bearing  interest  not  exceed- 
ing six  per  centum  per  annum,  and  payable  at  any  time  not  ex- 
ceeding twelve  months  from  date,  provided  that  the  amount  of 
notes  so  issued,  or  paid,  shall  at  no  time  exceed  $20,000,000, 

Sec.  S  provides  that  the  Secretary  of  the  Treasury  shall  report 
to  Congress  his  proceedings  under  this  act. 

Sec.  9.  That  the  faith  of  the  United  States  is  hereby  solemnly 
pledged  for  the  payment  of  the  interest  and  redemption  of  the 
principal  of  the  loan  authorized  by  this  act. 

Sec.  10.  That  all  the  provisions  of  the  act  entitled  "An  act  to 
authorize  the  issue  of  Treasury  notes,"  approved  the  twenty-third 
day  of  December,  eighteen  hundred  and  fifty-seven,  so  far  as  the 
same  can  or  may  be  applied  to  the  provisions  of  this  act,  and  not 
inconsistent  therewith,  are  hereby  revived  or  re-enacted. 


THE  ACT  OF  AUGUST  5,  1861. 

[This  act  is  supplementary  to  the  foregoing,  and  relates  to  pre- 
cisely the  same  issues.]     [2,  3,  4.] 
AN  Act  Supplementary  to  an  act  Entitled  "An  Act  to  authorize 

a  N'ational  Loan,  and  for  other  purposes." — Vol.  XII.,  p.  313,  Stat. 

at  Large. 

Section  l.  That  the  Secretary  of  the  Treasury  is  hereby  (2) 
authorized  to  issue  bonds  of  the  United  States,  bearing  interest  at 
6  per  cent,  per  annum,  and  payable  at  the  pleasure  of  the  United 
States  after  twenty  years  from  date ;  and  if  any  holder  of  Treasury- 
notes,  bearing  interest  at  the  rate  7  3-10  per  cent.,  which  may  (4) 
be  issued  under  the  authority  of  the  act  to  authorize  a  national 
loan  and  for  other  purposes,  approved  July  17, 1861,  shall  desire  to 
exchange  the  same  for  said  bonds,  the  Secretary  of  the  Treasury 
may  at  any  time  before  or  at  the  maturity  of  said  Treasury  notes, 
issue  to  said  holder,  in  payment  thereof,  an  amount  of  said  bonds 
equal  to  the  amount  which,  at  the  time  of  such  payment  or  ex- 
change, may  be  due  on  said  Treasury  notes ;  but  no  such  bonds 
shall  be  issued  for  a  less  sum  than  $500,  nor  shall  the  whole 
amount  of  such  bonds  exceed  the  whole  amount  of  Treasury  notes 
bearing  7  3-10  per  cent,  interest,  issued  under  said  act;  and  any 
part  of  the  Treasiiry  notes  payable  on  demand,  authorized  by  said 
act,  may  be  made  payable  by  the  Assistant  Treasurer  at  St.  Louis, 
or  by  the  depositary  at  Cincinnati. 


232  APPENDIX. 

Sec.  2  relates  entirely  to  the  method  of  making  the  Treasury 
notes. 

Sec.  3  reduces  the  lowest  denomination  of  the  Treasury  notes  (3j 
from  $10  to  $5. 

Sec.  4  appropriates  .^100,000  more  for  expenses. 

Sec.  5  That  the  Treasury  notes  authorized  by  the  act  to  (3) 
which  this  is  supplementary,  of  a  less  denomination  than  $50,  pay- 
able on  demand  without  interest,  and  not  exceeding  in  amount 
the  sum  of  $50,000,000,  shall  be  receivable  in  payment  of  public 
dues. 

Sec.  6  suspended  those  portions  of  tlie  Sub-Trq^sury  act  (1 846,  ch. 
■90)  which  would  not  permit  deposits  in  solvent  specie-paying 
banks,  and  authorized  such  deposits. 

Sec.  7.  That  the  Secretary  of  the  Treasury  may  sell  or  negotiate, 
for  any  portion  of  the  loan  provided  for  in  the  act  to  which  (2) 
this  is  supplementary,  bonds  payable  not  more  than  twenty  years 
from  date,  and  bearing  interest  not  exceeding  6  per  centum  per 
annum,  payable  semi-annually,  at  any  rate  not  less  than  the  equiv- 
alent of  par,  for  the  bonds  bearing  7  per  centum  interest 
authorized  by  said  act. 


THE  ACT  or  TEBEUARY  12, 1862. 

[This  act  authorized  the  issue  of  $10,000,000  more  of  "Demand 
Notes."  making  $60,000,000  in  all.] 
An  Act  to  Authorize  an  Additional  Issue  of  United  States  Notes. 

—Vol.  XII.,  p.  338,  Stat,  at  Large. 

That  the  Secretary  of  the  Treasury,  in  addition  to  the  $50,000,000 
of  notes  payable  on  demand  of  denominations  not  less  than  (3) 
$5,  heretofore  authorized  by  the  acts  of  July  17  and  August  5, 
1861,  be  and  he  is  hereby  authorized  to  issue  like  notes  and  for  like 
purposes,  to  the  amount  of  $10,000,000.  and  said  notes  shall  be 
deemed  part  of  the  loan  of  $250,000,000  authorized  by  said  acts. 


THE  ACT  OF  EEBRUAEY  25, 1862. 

[This  act  authorized  the  issue  of  the  first  "Greenbacks"  of  the 
bonds  known  as  "the  5-20s  of  1862,"  and  of  the  earliest  issue  of  the 
'Temporary  Loan  Certificates."]     [3, 5,  6,  7.] 

An  Act  to  Authoriz  the  Issue  of  United  States  Notes,  and  for 
the  Eedemption  or  Funding  thereof,  and  for  Funding  the  Float- 
ing Debt  of  the  United  States.— Vol.  XII.,  p.  345,  Stat,  at  Large. 
Section  1.  That  the  Secretary  of  the  Treasury  is  hereby  (6) 


DIGEST  OF  FIXAXCE  LAWS.  23? 

authorized  to  issue,  on  credit  of  the  United  States,  S150,000,000  of 
United  States  notes,  not  bearing  interest,  payable  to  bearer  at  the 
Treasury  of  the  United  States  and  of  sucli  denominations  as  he 
may  deem  expedient,  not  less  than  ^5  each.  Provided,  However, 
that  fifty  millions  of  said  notes  shall  be  in  lieu  of  the  demand  (.3) 
Treasury  notes  authorized  to  be  issued  by  the  act  of  July  17, 1861; 
which  said  demand  notes  shall  be  taken  up  as  rapidly  as  practica- 
ble, and  the  notes  herein  provided  for  substituted  for  them:  And 
provided  farther.  That  the  amount  of  the  two  kinds  of  notes 
together  shall  at  no  time  exceed  the  sum  of  $150,000,000,  and  such 
notes  herein  authorized  shall  be  receivable  in  payment  of  all  taxes, 
internal  duties,  excises,  debts,  and  demands  of  every  kind  due  to 
the  United  States,  except  duties  on  imports,  and  of  all  claims  and 
demands  against  the  United  States  of  every  kind  whatsoever,  ex- 
cept for  interest  upon  bonds  and  notes,  which  shall  be  paid  in 
coin,  and  shall  also  be  lawful  money  and  a  legal  tender  in  pay- 
ment of  all  debts,  public  and  private,  within  the  United  States, 
•exr(>pt  duties  on  imports  and  interest  as  aforesaid.  And  any  (5) 
holders  of  said  United  States  notes  depositing  any  sum  not  less 
than  850,  or  some  multiple  of  $50,  with  the  Treasurer  of  the  United 
States,  or  either  of  the  Assistant  Treasurers,  shall  receive  in  ex- 
■change  therefor  duplicate  certificates  of  deposit,  one  of  which  may 
be  transmitted  to  the  Secretary  of  the  Treasury,  who  shall  there- 
upon issue  to  the  holder  an  equal  amount  of  bonds  of  the  United 
States,  coupon  or  registered,  as  may  by  said  holder  be  desired, 
bearing  interest  at  the  rate  of  six  per  centum  per  annum,  payable 
semi-annually,  and  redeemable  at  the  pleasure  of  the  United  States 
after  five  years,  and  payable  twenty  years  from  the  date  thereof. 
And  such  United  States  notes  shall  be  received  the  same  as  (6) 
-coin,  at  their  par  value,  in  payment  for  any  loans  that  may  be 
hereafter  sold  or  negotiated  by  the  Secretary  of  the  Treasury,  and 
may  be  re-issued  from  time  to  time  as  the  exigencies  of  the  public 
interest  shall  require. 

Sec  2.  That  to  enable  the  Secretary  of  the  Treasury  to  fund  (5) 
theTreasury  notes  and  floating  debt  of  the  United  States,  he  is 
hereby  authorized  to  issue,  on  the  credit  of  the  United  States, 
coupon  bonds,  or  registered  bonds,  to  an  amount  not  exceeding 
$500,000,000,  redeemable  at  the  pleasure  of  the  United  States  after 
five  years,  and  payable  twenty  years  from  date,  and  bearing  in- 
terest at  the  rate  of  six  per  centum  per  annum,  payable  semi-an- 
nually. And  the  bonds  herein  authorized  shall  be  of  such  denom- 
inations, not  less  than  $50,  as  may  be  determined  upon  by  the  Sec- 
retary of  the  Treasury.  And  the  Secretary  of  the  Treasury  may 
dispose  of  such  bonds  at  any  time,  at  the  market  value  thereof,  for 
the  coin  of  the  United  States,  or  for  any  of  the  Treasury  notes 
that  have  been  or  may  hereafter  be  issued  under  any  former  act 
15 


234  APPEXDIX. 

of  Congress,  or  for  United  States  notes  that  may  be  issued  under 
the  provisions  of  this  act ;  and  all  stocks,  bonds,  and  other  securi- 
ties of  the  United  States  held  by  individuals,  corporations,  or  asso- 
ciations within  the  United  States,  shall  be  exempt  from  taxation- 
by  or  under  State  authority. 

Sec.  8  relates  to  the  form  of  the  notes  and  bonds— their  signing, 
etc.,  and  appropriates  S?X)0,000  for  expenses  and  engraving,  etc. 

Sec.  4.  That  the  Secretary  of  the  Treasury  may  receive  from  (7)' 
any  person  or  persons,  or  any  corporation,  United  States  notes  on 
deposit  for  not  less  than  thirty  days,  in  sums  of  not  less  than  $100,. 
with  any  of  the  Assistant  Treasurers  or  designated  depositaries  of 
the  United  States  authorized  by  the  Secretary  of  the  Treasury  to 
receive  them,  who  shall  issue  therefor  certificates  of  deposit 
made  in  such  form  as  the  Secretary  of  the  Treasury  shall  prescribe?- 
and  said  certificates  of  deposit  shall  bear  interest  at  the  rate  of  five 
per  centum  per  annum ;  and  any  amount  of  United  States  notes  so 
deposited  may  be  withdrawn  from  deposit  at  any  time  after  ten 
days'  notice  on  the  return  of  said  certificates :  Provided,  That  the 
interest  on  all  such  deposits  shall  cease  and  determine  at  the  plea- 
sure of  the  Secretary  of  the  Treasury.  And  provided  further^. 
That  the  aggregate  of  such  deposit  shall,  at  no  time,  exceed  the 
amount  of  $25,000,000. 

Sec.  5.  That  all  duties  on  imported  goods  shall  be  paid  in  coin,  (3) 
or  in  notes  payable  on  demand  heretofore  authorized  to  be  issued, 
and  by  law  receivable  in  payment  of  public  dues,  and  the  coin  so 
paid  shall  be  set  apart  as  a  special  fund,  and  shall  be  applied  as 
follows : 

1.  To  the  payment  in  coin  of  the  interest  on  the  bonds  and  note, 
of  the  United  States. 

2.  To  the  purchase  or  payment  of  one  per  centum  of  the  entire 
debt  of  the  United  States,  to  be  made  within  each  fiscal  year  after 
the  first  day  of  July,  1862,  which  is  to  be  set  apart  as  a  sinking  fund 
and  the  interest  of  which  shall,  in  like  manner,  be  applied  to  the 
purchase  or  payment  of  the  public  debt,  as  the  Secretary  of  the 
Treasury  shall,  from  time  to  time  direct. 

0.  The  residue  thereof  to  be  paid  into  the  Treasury  of  the  United 
States. 
Sec.  6,  provides  penalties  for  forging,  counterfeiting,  etc. 
Sec.  7  does  likewise. 


TPIE  ACT  OF  MARCH  1,  18G2. 

[By  this  act  the  first  issue  of  "Certificates  of  Indebtedness"  was 
authorized.]    [8.] 

An  Act  to  Authorize  the  Secretary  of  the  Treasury  to  Issue  Certi- 


DIGEST  OF  FINANCE  LAWS.  235 

fieates  of  Indebtedness  to  Public  Creditors.— Vol.  XII.,  p.  352, 

Stat,  at  Large. 

Section  1.  That  the  Secretary  of  the  Treasury  be,  and  he  is  (8) 
hereby,  authorized  to  cause  to  be  issued  to  any  public  creditor  who 
may  be  desirous  to  receive  the  same,  upon  requisition  of  the  head 
of  the  proper  department,  in  satisfaction  of  audited  and  settled 
demands  against  the  United  States,  certificates  for  the  whole 
amount  due,  or  parts  thereof  not  less  than  one  thousand  dollars, 
signed  by  the  Treasurer  of  the  United  States,  and  contersigned  as 
may  be  directed  by  the  Secretary  of  the  Treasury ;  which  certifi- 
cates shall  be  payable  in  one  year  from  date,  or  earlier,  at  the 
option  of  the  Government,  and  shall  bear  interest  at  the  rate  of 
six  per  centum  per  annum. 


THE  ACT  OF  MARCH  17, 1862. 

[This  act  authorized  the  additional  issue  of  "Temporary  Loan 
Certificates"  and  "Certificates  of  Indebtedness,"  and  made  the 
"Demand  Xotes"  a  legal  tender.]    [3,  6,  7, 8.] 

An  Act  to  Authorize  the  Purchase  of  Coin,  and  for  other  pur- 
poses.—Vol.  XII.,  p.  370,  Stat,  at  Large. 

Section  1.  That  the  Secretary  of  Treasury  may  purchase  coin 
with  any  of  the  bonds  or  notes  of  the  United  States,  authorized  by 
law,  at  such  rates  and  upon  such  terms  as  he  may  deem  most  ad- 
vantageous to  the  public  interesc ;  and  may  issue,  under  such  (8) 
rules  and  regulations  as  he  may  prescribe,  certificates  of  indebted- 
ness, such  as  are  authorized  by  an  act  entitled  "An  act  to  authorize 
the  Secretary  of  the  Treasury  to  issue  certificates  of  indebtedness 
to  public  creditors,"  approved  March  1, 1862,  to  such  creditors  as 
may  desire  to  receive  tlie  same  in  discharge  of  checks  drawn  by 
disbursing  officers  upon  sums  placed  to  their  credit  on  the  books 
of  the  Treasurer,  upon  requisitions  of  the  proper  departments,  as 
well  as  in  discharge  of  audited  and  settled  accounts,  as  provided 
by  said  act. 

Sec.  2.  That  the  demand  notes  authorized  by  the  act  of  July  (3) 
17, 1861,  and  by  the  act  of  February  12,  1862,  shall,  in  addition  to 
being  receivable  in  payment  of  duties  on  imports,  be  receivable, 
and  shall  be  lawful  money  and  a  legal  tender,  in  like  manner,  and 
for  the  same  purposes,  and  to  the  same  extent,  as  the  notes  author- 
ized by  an  act  entitled  "An  act  to  authorize  the  issue  of  United 
States  notes,  and  for  the  redemption  or  funding  thereof,  and  for 
funding  the  floating  debt  of  the  United  States,"  approved  Febru- 
ary 25,  1SG2. 

Seo.  3.  That  the  limitation  upon  temporary  deposits  of  (7^ 
United  States  notes  with  any  Assistant  Treasurers  or  designated 


23G  APPENDIX. 

depositaries,  autliorized  by  tlie  Secretary  of  the  Treasury  to  re- 
ceive such  deposits,  at  5  per  cent,  interest,  to  ^25,000,000.  sliall  be 
so  far  modified  as  to  authorize  the  Secretary  of  the  Treasury  to 
receive  such  deposits  to  an  amount  not  exceeding  350,000,000,  and 
that  tlie  rates  of  interest  shall  be  prescribed  by  the  Secretary  of 
the  Treasury,  not  exceeding  tlie  annual  rate  of  5  per  centum. 

Sec.  4.  That,  in  all  cases  where  the  Secretary  of  the  Treasury  (0) 
is  authorized  by  law  to  reissue  notes,  he  may  replace  such  as  are 
so  mutilated  or  otherwise  injured  as  to  be  unfit  for  use,  with 
•others  of  the  same  character  and  amount;  and  such  mutilated 
notes,  and,  all  others  which  by  law  are  required  to  be  taken  up 
and  not  reissued,  shall  when  so  replaced  or  taken  up,  be  destroyed 
in  such  manner,  and  under  such  regulations,  as  the  Secretary  of 
the  Treasury  may  prescribe. 


THE  ACT  OF  JULY  1,  1862. 

[This  relates  entirely  to  the  Pacific  Railroad,  and  we  give  only 
those  sections  providing  for  the  issue  of  bonds  to  those  corpora- 
tions.]   [31.] 

Section  5.  That,  for  the  purpose  herein  mentioned,  the  (31) 
Secretary  of  the  Treasury  shall,  upon  the  certificate  in  writing  of 
said  commissioners  of  the  completion  and  equipment  of  forty  con- 
secutive miles  of  said  railroad  and  telegraph,  in  accordance  with 
the  provisions  of  this  act,  issue  to  said  company  bonds  of  the 
United  States  of  81,000  each,  payable  in  thirty  years  after  date,  Ijear- 
ing  six  per  centum  per  annum  interest  (said  interest  payable  semi- 
annually), which  interest  may  be  paid  in  United  States  Treasury 
notes,  or  any  other  money  or  currency  which  the  United  States 
have,  or  shall  declare  lawful  money,  and  a  legal  tender,  to  the 
amount  of  sixteen  of  said  bonds  per  mile  of  such  section  of  forty 
miles;  and  to  secure  the  repayment  to  the  United  States,  as  here- 
inafter provided,  of  the  amount  of  said  bonds  so  issued  and  deliv- 
ered to  said  company,  together  with  all  interest  therein  which 
slial!  have  been  paid  by  the  United  States,  tlie  issue  of  said  bonds 
aud  delivery  to  said  company,  shall  yj.so  facto  constitute  a  first 
moitgage  on  the  whole  line  of  the  railroad  and  telegi'aph,  together 
witli  the  rolling  stock,  fixtures,  and  property  of  every  kind  and 
description,  and  in  consideration  of  which  said  bonds  may  be 
issued  ;  and  on  the  refusal  or  failure  of  said  company  to  redeem 
said  ))onds,  or  any  part  of  them,  when  required  so  to  do  by  the 
Secretary  of  the  Treasury,  in  accordance  with  the  provisions  of 
this  act,  the  said  road,  with  all  the  rights,  functions,  immunities, 
and  appurtenances  thereunto  belonging,  and  also  all  lands  granted 
lu  tlie  said  company  by  the  Unitw.1  States  which  at  the  time  of 


DIGEST  OF  FIX  A  NTH  LAWS.  2J7 

said  default  shall  remain  in  the  owiuTrfhi])  of  said  conii)any,  may" 
he  taken  possession  of  by  the  Secretary  of  the  Treasury,  for  the 
use  and  benefit  of  the  United  States ;  Provided,  This  section  shall 
not  apply  to  that  part  of  any  road  now  constructed. 

Sec.  0.  That  the  grants  aforesaid  are  made  upon  condition  that 
said  company  shall  pay  said  bonds  at  maturity,  and  shall  keep  said 
railroad  and  telegraph  line  in  repair  and  use,  and  shall  at  all  times 
transmit  dispatches  over  said  telegraph  line,  and  transport  mails, 
troops,  munitions  of  war,  supplies  and  public  stores  upon  said  rail- 
road for  the  Government,  whenever  required  to  do  so  by  any  de- 
partment thereof,  and  that  the  Government  shall  at  all  times  have 
the  preference  in  the  use  of  the  same  for  all  the  purposes  afore- 
said (at  fair  and  reasonable  rates  of  compensation,  not  to  exceed 
the  amounts  paid  bs  private  parties  for  the  same  kind  of  service); 
and  all  compensation  for  services  rendered  for  the  Government 
shall  be  applied  to  the  payment  of  said  bonds  and  interest  until 
the  Avhole  amount  is  fully  paid.  Said  company  may  also  pay  the 
United  States,  wholly  or  in  part,  in  the  same  or  other  bonds.  Treas- 
ury notes,  or  other  evidences  of  debt  against  the  United  States,  to 
be  allowed  at  par;  and  after  said  road  is  completed,  until  said 
bonds  and  interest  are  paid,  at  least  live  per  centum  of  the  net 
earnings  of  said  road  shall  also  be  annually  applied  to  the  payment 
thereof. 


THE  ACT  OF  JULY  11,  1862. 

[This  act  authorizes  the  further  issue  of  "  Greenbacks  "  and  of 
"  Certiflcates  of  Indebtedness."]    [.5,  6,  7,  S.] 

An  Act  to  Authorize  an  Additional  Issue  of  United  States  Notes 
and  for  other  purposes.— Vol.  XII.,  p.  .5:]2,  Stat,  at  Large.  (6) 

Section  l.  That  the  Secretary  of  the  Treasury  is  hereby  au- 
thorized to  issue,  in  addition  to  the  amounts  heretofore  authorized, 
on  the  credit  of  the  United  States,  8150,000,000  of  United  States 
notes,  not  bearing  interest,  payable  to  bearer  at  the  Treasury  of 
the  United  States,  and  of  such  denominations  as  he  may  deem 
expedient:  Provided,  That  no  note  shall  be  issued  for  the  frac- 
tional part  of  a  dollar,  and  not  more  than  8:>j.000,000  shall  be  of 
lower  denomination  than  85;  and  such  notes  shall  be  receival)Ie 
in  payment  of  all  loans  paid  to  the  United  States,  and  of  all  taxes, 
internal  duties,  excises,  debts,  and  demands  due  to  the  United 
States,  except  duties  on  imports  and  interest,  and  of  all  claims  and 
demands  against  the  United  States,  except  for  interest  upon  bonds, 
notes  and  certificates  of  debt  or  deposit;  and  shall  also  be  lawful 
money  and  a  legal  tender  in  payment  of  all  deltts,  public  and  pri- 
vate, within  tlie  United  States,  except  duties  on  imports  and  in- 


238  APPENDIX. 

terest,  as  aforesaid.  And  any  holder  of  said  United  States  (5) 
notes  depositing  any  sum  not  less  than  $50,  or  some  multiple  of 
$50,  with  the  Treasurer  of  the  United  States,  or  either  of  the  Assis- 
tant Treasurers,  shall  receive  in  exchange  therefor  duplicate  cer- 
tificates of  deposit,  one  of  which  may  be  transmitted  to  the  Sec- 
retary of  the  Treasur}%  who  shall  thereupon  issue  to  tlie  holder  an 
equal  amount  of  bonds  of  the  United  States,  coupon  or  registered, 
as  may  by  said  holder  be  desired,  bearing  interest  at  the  rate  of 
six  per  centum  per  annum,  payable  semi-annually,  and  redeemable 
at  the  pleasure  of  the  United  States  after  five  years,  and  payable 
twenty  years  from  the  date  thereof:  Provided,  however,  That  (G) 
any  notes  issued  under  this  act  may  be  paid  in  coin,  instead  of 
being  received  in  exchange  for  certificates  of  deposit,  as  above 
specified,  at  the  direction  of  the  Secretary  of  the  Treasury.  And  (5) 
the  Secretary  of  the  Treasury  may  exchange  for  such  notes,  on 
terms  as  he  shall  think  most  beneficial  to  the  public  interest,  any 
bonds  of  the  United  States  bearing  six  per  centum  interest,  and  re- 
deemable after  five  and  payable  in  twenty  years,  which  have  been 
or  may  be  lawfully  issued  under  the  provisions  of  an  existing  act; 
may  reissue  the  notes  so  received  in  exchange;  may  receive  and 
cancel  any  notes  heretofore  lawfully  issued  under  any  act  of  Con- 
gress, and  in  lieu  thereof  issue  an  equal  amount  in  notes  such  as 
are  authorized  by  this  act;  and  may  purchase,  at  rates  not  exceed- 
ing that  of  the  current  market,  and  the  cost  of  purchase  not  ex- 
ceeding one-eighth  of  one  per  centum,  any  bonds  or  certificates  of 
debt  of  the  United  States  as  he  may  deem  advisable. 
Sec.  2  relates  to  the  details  of  printing.  (7) 

Sec.  3.  That  the  limitation  upon  temporary  deposits  of  Uni- 
ted States  notes  Avith  any  Assistant  Treasurer,  or  designated  depos- 
itary authorized  by  the  Secretary  of  the  Treasury  to  receive  such 
deposits  to  $50,000,000,  be  and  is  hereby  repealed ;  and  the  Secretary 
of  the  Treasury  is  authorized  to  receive  such  deposits,  under  such 
regulations  as  he  may  prescribe,  to  such  amount  as  he  may  deem 
expedient,  not  excecfling  $100,000,000,  for  not  less  tlian  thirty  days, 
in  sums  not  less  than  $100,  at  a  rate  of  interest  iu)t  exceeding 
five  per  centum  per  annum;  and  any  amount  so  dei)()sited  may  be 
withdrawn  from  deposit  at  any  time  after  ten  days'  notice,  on  the 
return  of  the  certilicates  of  deposit.  And  of  the  amount  of  (6) 
United  States  notes  authorized  by  this  act,  not  less  than  $50,000,000 
shall  be  reserved  for  the  purpose  of  securing  promi)t  payment  of 
such  deposits  when  demanded,  and  shall  be  issued  and  used  only 
when,  in  the  judgment  of  the  Secretary  of  the  Treasury,  tlie  same 
or  any  part  tlifrcol'  may  be  needed  for  that  puri)ose.  And  certificates 
of  deposit  and  ni  indebtedness  issued  under  this  or  former  (7  8) 
acts  may  be  received  on  the  same  terms  as  United  States  notes  in 
payment  for  l)()nds  reil(>cnial)le  after  five  ami  payable  in  twenty 
years. 


DIGEST  OF  FINANCE  LAWS.  239 

bEC.  4.  That  the  Secretary  of  the  Treasury  may,  at  any  time, 
xintil  otherwise  ordered  by  Congress,  and  under  tlie  restrictions 
imposed  by  the  "Act  to  autliorize  a  national  loan,  and  for  other 
purposes,"  borrow  on  the  credit  of  the  United  States,  such  part  ol 
the  sum  of  $250,000,000  mentioned  in  said  act  as  may  not  have 
been  borrowed  under  the  provisions  of  the  same,  within  twelve 
months  from  the  passage  thereof. 

Sec.  5  relates  to  counterfeiting. 

Sec.  6  makes  the  provisions  pf  the  act  of  February  25, 18G2,  appli- 
-cable  to  this  act. 


THE  ACT  OF  JULY  17, 1862. 

[This  was  the  act  under  which  the  "Postal  Currency"  was  is- 
.sued.]    [9.] 

An  Act  to  Authorize  Payments  in  Stamps,  and  to  Prohibit  Cir- 
culation of  IN'otes  of  less  Denomination  than  one  dollar. — Yol. 
XII.,  p.  592,  Stat,  at  Large. 

Section  1.  That  the  Secretary  of  the  Treasury  be  aud  he  is  (9) 
hereby  directed  to  furnish  to  the  Assistant  Treasurers,  and  such 
designated  depositaries  of  the  United  States  as  may  be  by  him 
selected,  in  such  sums  as  he  may  deem  expedient,  the  postage  and 
other  stamps  of  the  United  States,  to  be  exchangetl  by  them,  on 
application,  for  United  States  notes;  and  from  and  after  the  1st 
■day  of  August  next  such  stamps  shall  be  receivable  in  payment  of 
all  dues  to  the  United  States  less  than  $5,  and  shall  be  received  in 
•exchange  for  United  States  notes  when  presented  to  any  Assistant 
Treasurer  or  any  designated  depositary,  in  sums  not  less  than  S5. 

Sec.  2.  That,  from  and  after  the  1st  day  of  August,  1862,  no  pri- 
vate corporation,  banking  association,  firm  or  individual  shall 
make,  issue,  circulate  or  pay  any  note,  check,  memorandum,  token 
or  other  obligation  for  a  less  sum  than  $1,  intended  to  circulate  as 
money  or  to  be  received  or  used  in  lieu  of  lawful  money  of  the 
United  States;  and  every  person  so  offending  shall,  on  conviction 
thereof,  in  any  district  or  circuit  court  of  the  United  States,  be 
punished  by  fine  not  exceeding  $500,  or  by  imprisonment  not  ex- 
ceeding six  months,  or  by  both,  at  the  option  of  the  court. 


THE  ACT  OF  MAECH  3,  1863. 

[This  act  authorized  still  further  issues  of  "Greenbacks"  and 
"  Certificates  of  Indebtedness,"  and  constituted  the  authority  for 
the  issue  of  the  boiads  known  as  "  the  Loan  of  1863,"  for  the  "  One 
and  Two-year  five  per  cents,"  for  the  "  Compound  Interest  Notes 
of  1863,"  for  the  "Coin  Certificates,"  and  for  the  "Fractional  Cur- 
rency."]    [5,  0.  7.  S,  0,  10. 11,  12,  13.  1 1.] 


240  APPENDIX. 

An  Act  to  Provide  Ways  and  Means  for  the  Support  of  the  Gov- 
ernment.—Yol.  XII.,  p.  109,  Stat,  at  Large. 

Section  l.  That  the  Secretary  of  the  Treasm-y  be  and  he  i& 
hereby  authorized  to  borrow,  from  time  to  time,  on  the  credit  of 
the  United  States,  a  sum  not  exceeding  §300,000,000  for  the  current 
fiscal  year,  and  §1600,000,000  for  the  next  fiscal  year,  and  to  issue 
therefor  coupon  or  registered  bonds,  payable  at  the  pleasure  (10) 
of  the  Government  after  such  periods  as  may  be  fixed  by  the  Sec- 
retary, not  less  than  ten  nor  more  than  forty  years  from  date,  in 
coin,  and  of  such  denominations,  not  less  than  S50,  as  he  may  deem 
expedient,  bearing  interest  at  a  rate  not  exceeding  6  per  cent,  per 
annum,  payable  on  bonds  not  exceeding  8100,  annually,  and  on  all 
other  bonds  semi-annually,  in  coin;  and  he  may,  in  his  discretion, 
dispose  of  such  bonds  at  any  time,  upon  such  terms  as  he  may 
deem  most  advisable,  for  lawful  money  of  the  United  States,  or 
for  any  of  the  certificates  of  indebtedness  or  deposit  that  may  at 
any  time  be  unpaid,  or  for  any  of  the  Treasury  notes  heretofore 
issued,  or  Avhieh  may  l)e  issued  under  the  provisions  of  this  act. 
And  all  the  bonds  and  Treasury  notes  or  United  States  notes  issued 
under  the  provisions  of  this  act  shall  be  exempt  from  taxation  by 
or  under  State  or  municipal  authority ;  Provided,  That  there  shall 
be  outstanding  of  bonds.  Treasury  notes,  and  United  States  notes,, 
at  any  time,  issued  under  the  provisions  of  this  act,  no  greater 
amount  altogether  than  the  sum  of  §900,000,000. 

Sec.  2.  That  the  Secretary  of  the  Treasury  be  and  he  (11,  12, 14) 
is  hereby  authorized  to  issue,  on  the  credit  of  the  United  States, 
$400,000,000  in  Treasury  notes,  payable  at  the  pleasure  of  the 
United  States,  or  at  such  time  or  times,  not  exceeding  three  years 
from  date,  as  may  be  found  most  beneficial  to  the  public  interests, 
and  bearing  interest  at  a  rate  not  exceeding  6  per  cent,  per  annum, 
payable  at  periods  expressed  on  the  face  of  said  Treasury  notes; 
and  the  interest  on  the  said  Treasury  notes  and  on  certificates  (7,  S) 
of  indebtedness  and  deposit  hereafter  issued,  shall  be  paid  in  law- 
ful money.  The  Treasury  notes  thus  issued  shall  be  (11, 12,  14.) 
of  such  denomination  as  the  Secretary  may  direct,  not  less  than 
SlO,  and  may  be  disposed  of  on  the  best  terms  that  can  be 
obtained,  or  may  l)e  paid  to  any  creditor  of  the  United  States  will- 
ing to  receive  the  same  at  par.  And  said  Treasury  notes  may  be 
made  a  legal  tender  to  the  same  extent  as  United  States  notes,  for 
their  face  value,  excluding  interest;  or  they  may  be  made 
exchangeable  under  regulations  prescribed  by  tlie  Secretary  ot  tiie 
Treasury,  by  the  holder  thereof,  at  the  Treasury  in  the  city  of 
Washington,  or  at  the  office  of  any  Assistant  Treasurer  or  depos- 
itary designated  for  that  purpose,  for  United  States  notes  ecpial  ia 
amount  to  the  Treasury  notes  offered  for  excliange,  together  with 
the  interest  accrued  and  due  thereon  at  the  date  of  interest  pay- 


DIGEST  OF  FINANCE  i.AWS.  241 

ment  next  preceding  such  exchange.  And,  in  lieu  of  any  amount 
of  said  Treasury  notes  thus  exchanged,  or  redeemed  or  paid  at 
maturity,  the  Secretary  may  issue  an  equal  amount  of  other  Treas- 
ury notes;  and  the  Treasury  notes  so  exchanged,  redeemed  or  p.iid 
shall  be  canceled  and  destroyed,  as  the  Secretary  may  direct.  In  ((J) 
order  to  secure  certain  and  prompt  exchanges  of  United  States 
notes  for  Treasury  notes,  wlien  required  as  above  provided,  the 
Secretary  shall  have  power  to  issue  United  States  notes  to  the 
amount  of  6150,000,000,  which  may  be  used,  if  necessary,  for  such 
exchanges;  but  no  part  of  the  United  States  notes  authorized  by 
this  section  shall  be  issued  for,  or  applied  to,  any  other  purposes 
than  said  exchanges ;  and  whenever  any  amount  shall  have  been 
so  issued  and  ajiplied,  the  same  shall  be  replaced,  as  soon  as  prac- 
ticable, from  the  sales  of  Treasury  notes  for  United  States  notes. 

Sec.  3.  That  the  Secretary  of  the  Treasury  be,  and  he  is  hereby  (0> 
authorized,  if  required  by  the  exigencies  of  the  public  service,  for 
the  payment  of  the  army  and  navy,  and  other  creditors  of  the  Gov- 
ernment, to  issue  on  the  credit  of  the  United  States  the  sum  of 
$150,000,000  of  United  States  notes,  including  the  amount  of  such 
notes  heretofore  authorized  by  the  joint  resolution  approved  Jan- 
uary 17,  I860,  in  such  form  as  he  may  deem  expedient,  not  bearing^ 
interest,  payable  to  bearer,  and  of  such  denominations,  not  less 
than  $1,  as  he  may  prescribe,  which  notes  so  issued  shall  be  lawful 
money,  and  a  legal  tender  in  payment  of  all  debts,  public  and  pri- 
vate, within  the  United  States,  except  for  duties  on  imports  and 
interest  on  the  public  debt;  and  any  of  the  said  notes,  when  re- 
turned to  the  Treasurj^  may  be  reissued  from  time  to  time,  as  the 
exigencies  of  the  public  service  may  require.  And  in  lieu  of  any 
of  said  notes,  or  any  other  United  States  notes,  returned  to  the 
Treasury,  and  cancelled  or  destroyed,  there  may  be  issued  equal 
amounts  of  United  States  notes,  such  as  are  authorized  by  this  act.. 
And  so  much  of  the  act  to  authorize  the  issue  of  United  States  (5> 
notes  and  for  other  purposes,  approved  February  25, 1862,  and  of 
the  act  to  authorize  an  additional  issue  of  United  States  notes,  and 
for  other  purposes,  approved  .July  11, 1802,  as  restricts  the  negotia- 
tion of  bonds  to  market  value,  is  hereby  repealed.  And  the  (6) 
holders  of  United  States  notes  issued  under  and  by  virtue  of  said 
acts,  shall  present  the  same,  for  the  purpose  of  exchanging  the 
same  for  bonds,  as  therein  provided,  on  or  before  the  first  day  of 
July,  I860,  and  thereafter  the  right  so  to  exchange  the  same  shall 
cease  and  determine. 

Sec.  4.  That,  in  lieu  of  postage  and  revenue  stamps  for  fractional 
currency,  and  of  fractional  notes,  commonly  called  postage  (9) 
currency,  issued  or  to  be  issued,  the  Secretary  of  the  Treasury  may 
issue  fractional  notes  of  like  amounts,  in  such  form  as  he  may 
deem  expedient,  and  may  provide  for  the  engraving,  preparation* 


242  APPENDIX. 

and  issue  thereof  in  the  Treasuiy  Department  Building.  And  alt 
such  notes  issued  shall  be  exchangeable  by  the  Assistant  Treasurers 
and  designated  depositaries  for  United  States  notes,  in  sums  not 
less  than  three  dollars,  and  shall  be  receivable  for  postage  and 
revenue  stamps,  and  also  in  payment  of  any  dues  to  the  United 
States  less  than  five  dollars,  except  duties  on  imports,  and  shall  be 
redeemable  on  presentation  at  the  Treasury  of  the  United  States, 
in  such  sums  and  under  such  regulations  as  the  Secretary  of  the 
Treasury  shall  prescribe:  Frovided,  Thut  the  whole  amount  of 
fractional  currency  issued,  including  postage  and  revenue  stamps 
issued  as  currency,  shall  not  exceed  )?50,UOO,000. 

Sec.  5.  That  the  Secretary  of  the  Treasury  is  hereby  authorized 
to  receive  deposits  of  gold  coin  and  bullion  with  the  Treasurer  (13) 
or  any  Assistant  Treasurer  of  the  United  States,  in  sums  not  less 
than  $20,  and  to  issue  certificates  therefor,  in  denominations  of  not 
less  than  320  each,  corresponding  with  the  denominations  of  the 
United  States  notes.  The  coin  and  bullion  deposited  for  or  repre- 
senting the  certificates  of  deposit  shall  be  retained  in  the  Treasury 
for  the  payment  of  the  same  on  demand.  And  certificates  repre- 
senting coin  in  the  Treasury  may  be  issued  in  payment  of  interest 
on  the  public  debt,  which  certificates,  together  with  those  issued 
for  coin  and  bullion  deposted  shall  not  at  any  time  exceed  twenty 
per  cent,  beyond  the  amount  of  coin  and  bullion  in  the  Treasury; 
and  the  certificates  for  coin  or  bullion  in  the  Treasury  shall  be  re- 
<;eived  at  par  in  payment  for  duties  on  imports. 

Sec.  6  relates  to  form,  signature,  etc.,  of  the  various  notes  and 
bonds. 

Sec.  7.  And  he  it  furtlier  enacted  that  all  banks  associations, 
■corporations,  or  individuals,  issuing  notes  or  bills  for  circulation 
as  currency,  shall  be  subject  to  and  pay  a  duty  of  one  percent,  each 
half  year  from  and  after  April,  1, 1863,  upon  the  average  amount 
■of  circulation,  and  notes  or  bill  as  currency  issued  beyond  the 
amount  hereinafter  named  that  is  to  say;  banks,  associations,  cor- 
porations, or  individuals,  having  a  capital  of  not  over  $100,000,  90 
per  cent,  thereof ;  over  $100,000  and  not  over  $200,000,  80  per  cent, 
thereof;  over  $200,000  and  not  over  $300,000,  70  per  cent,  thereof; 
over  $300,000  and  not  over  $.>0().000, 00  i)er  cent,  thereof ;  over  $500,000 
and  not  over  $1,000,000,  50  per  cent,  thereof ;  over  $1,000,000  and  not 
over  $1,500,000,  40  per  cent,  thereof ;  over  $'1,500,000  and  not  over 
$2,000,000,  30  per  cent,  thereof;  over  $2,000,000,  25  per  cent,  tliereof. 
In  the  case  of  banks  with  branches,  the  duty  herein  provided  for 
shall  be  imposed  upon  the  circulation  of  notes  or  bills  of  sucli 
branches  severally,  and  not  upon  the  aggregate  circulation  of  all, 
and  the  amount  of  capital  of  each  branch  shall  be  considered  to 
be  tlie  amount  allotted  to  or  used  by  such  branch. 

The  same  section  imposes  a  duty  of  5  per  cent,  on  fractional 


DIGEST  OF  FINANCE  LAWS.  243 

■notes,  issued  by  a  bank.    It  further  levies  a  tax  of  one  per  cent 
■on  all  deposits  except  in  savings  banks. 

Sec.  S  relates  to  counterfeiting,  and  iippropriates  $000,000  to  meet 
the  expenses  of  the  act. 


THE  RESOLUTION  OE  JANUAEY  17.  18C3. 

[This  resolution  authorizes  the  issue  of  $100,000,000  in  "Green- 
backs" for  immediate  use.]     [6.] 

Joint  Resolution  to  provide  for  the  immediate  payment  of  the 
Army  and  Xavy  of  the  United  States.— Vol.  XIL,  p.  822,  Stat,  at 
Large. 
Whereas,  It  is  deemed  expedient  to  make  immediate  provision 

for  the  payment  of  the  army  and  navy;  therefore. 

Be  it  Resolved,  etc.,  That  the  Secretary  of  the  Treasury  be,  (6) 
and  he  is  hereby,  authorized,  if  required  by  the  exigencies  of  the 
public  service,  to  issue  on  the  credit  of  the  United  States  the  sum 
■of  8100,000,000  of  United  States  notes,  in  such  form  as  he  may  deem 
-expedient,  not  bearing  interest,  payable  to  bearer  on  demand,  and 
•of  such  denominations,  not  less  than  $1,  as  he  may  prescribe,  which 
notes  so  issued  shall  be  lawful  money  and  a  legal  tender,  like  the 
rsimilar  notes  heretofore  authorized,  in  payment  of  all  debts,  public 
.and  private,  within  the  United  States,  except  for  duties  on  im- 
ports and  interest  on  the  public  debt;  and  the  notes  so  issued  shall 
,be  part  of  the  amount  provided  for  in  any  bill  now  pending  for 
the  issue  of  Treasury  notes,  or  that  may  be  passed  hereafter  by 
this  Congress. 


LExiDING    PROVISIONS    OF     THE    NATIONAL    BANK 

ACT. 

[Sections  of  Revised  Statutes.] 

Sec.  5133.  Associations  for  carrying  on  the  business  of  bank- 
ing under  this  title  may  be  formed  by  any  number  of  natural 
persons,  not  less  in  any  case  tlian  five.  They  shall  enter  into 
articles  of  association,  which  shall  specify  in  general  terms  the 
object  for  which  the  association  is  formed,  and  may  contain  any 
other  provisions,  not  inconsistent  with  law,  which  the  association 
may  see  fit  to  adopt  for  the  regulation  of  its  business  and  the  con- 
•duct  of  its  afiairs.  These  articles  shall  be  signed  by  the  persons 
uniting  to  form  the  association,  and  a  copy  of  them  shall  be  for- 
warded to  the  Comptroller  of  the  Currency,  to  be  filed  and  pre- 
■served  in  his  office. 

Sec.  '>]38.  No  association  shall  be  organized  under  this  title 
•with  a  less  capital  than  one  hundi-ed  thousand  dollars ;  except  that 


2-54  APPENDIX. 

banks  with  a  capital  of  not  less  than  fifty  thousand  dollars  may, 
with  th  e  approval  of  the  Secretary  of  the  Treasury,  be  organized 
in  any  place  the  population  of  which  does  not  exceed  six  thousand 
inhabitants.  ISTo  association  shall  be  organized  in  a  city  the  popu- 
lation of  which  exceeds  fifty  thousand  persons  with  a  less  capital 
than  two  hundred  thousand  dollars. 

Sec.  5171.  Upon  a  deposit  of  bonds  as  prescribed  by  sections 
fifty-one  hundred  and  fifty-nine  and  fifty-one  hundred  and  sixty,. 
the  association  making  the  same  shall  be  entitled  to  receive  from 
the  Comptroller  of  the  Currency  circulating  notes  of  difCerent  de- 
nominations, in  blank,  registered  and  countersigned  as  hereinafter 
provided,  equal  in  amount  to  ninety  per  centum  of  the  current 
market-value  of  the  United  States  bonds  so  transferred  and  de- 
livered, but  not  exceeding  ninety  per  centum  of  the  amount  of  the 
bonds  at  the  par  value  thereof,  if  bearing  interest  at  a  rate  not 
less  than  five  per  centum  per  annum :  Provided,  That  the  amount 
of  circulating  notes  to  be  furnished  to  each  association  shall  be  in 
proportion  to  its  paid  up  capital,  as  follows,  and  no  more : 

First.  To  each  association  whose  capital  does  not  exceed  five 
hundred  thousand  dollars,  ninety  per  centum  of  such  capital. 

Second.  To  each  association  Avhose  capital  exceeds  five  hundred 
thousand  dollars,  but  does  not  exceed  one  million  of  dollars,  eighty 
per  centum  of  such  capital. 

Third.  To  each  association  whose  capital  exceed  one  million  of 
dollars,  but  does  not  exceed  three  million[s]  of  dollars,  75  per 
centum  of  such  capital. 

Fourth.  To  each  association  whose  capital  exceeds  three  millions 
of  dollars,  sixty  per  centum  of  such  capital. 

Sec.  5182.  After  any  association  receiving  circulating  notes 
under  this  title  has  caused  its  promise  to  pay  such  notes  on  de- 
mand to  be  signed  by  the  president  or  vice-president  and  chashier 
thereof,  in  such  manner  as  to  make  them  obligatory  promissory 
notes,  payable  on  demand,  at  its  place  of  business,  such  associa- 
tion may  issue  and  circulate  the  same  as  money.  And  the  same- 
shall  be  received  at  par  in  all  parts  of  the  United  States  in  pay- 
ment of  taxes,  excises,  public  lands,  and  all  other  dues  to  the 
United  States,  except  duties  on  imports ;  and  also  for  all  salaries 
and  other  debts  and  demands  owing  by  the  United  States  to  in- 
dividuals, corporations,  and  associations  within  the  United  States, 
except  interest  on  the  public  debt,  and  in  redemption  of  the 
natioiuil  currency. 

Sec.  5214.  In  lieu  of  all  existing  taxes,  every  association  shall 
pay  to  the  Treasurer  of  the  United  States,  in  the  months  of 
January  and  July,  a  duty  of  one-luilf  of  one  per  centum  each  half- 
year  upon  the  average  amount  of  its  notes  in  circulation,  and  a 
duty  of  one-quarter  of  one  per  cenluni  each  half-year  upon  the- 


DIGEST  OF  FINANCE  LAWS.  245 

average  amount  of  its  deposits,  and  a  duty  of  one-quarter  of  one 
per  centum  eacli  half-year  on  the  average  amount  of  its  capital 
stock,  beyond  the  amount  invested  in  United  States  bonds. 

Sec.  5230.  Whenever  the  Comptroller  has  become  satisfied,  by 
the  protest  or  the  waiver  and  admission  specified  in  section  fifty- 
two  hundred  and  twenty-six,  or  by  the  reiwrt  provided  for  in  sec- 
tion fifty-two  hundred  and  twenty-seven,  that  any  association  has 
refused  to  pay  its  circulating  notes,  he  may,  instead  of  canceling 
its  bonds,  cause  so  much  of  them  as  may  be  necessary  to  redeem 
its  outstanding  notes  to  be  sold  at  public  auction  in  the  city  ot 
New  York,  after  giving  thirty  days'  notice  of  such  sale  to  the 
association.  For  any  deficiency  in  the  proceeds  of  all  the  bonds  of 
an  association,  when  thus  sold,  to  re-imburse  to  the  United  States 
the  amount  expended  in  paying  the  circulating  notes  of  the  associa- 
tion, the  United  States  shall  have  a  paramount  lien  upon  all  its 
assets ;  and  such  deficiency  shall  be  niade  good  out  of  such  assets 
in  preference  to  any  and  all  other  claims  whatsoever,  except  the 
necessary  costs  and  expenses  of  administering  the  same. 


THE  ACT  or  MAECH  3,  1864. 

[This  act  authorized  the  issue  of  the  bonds  known  as  the  "  Ten- 
forties  of  18C4."  and  extended  the  scope  of  the  provisions  of  the 
act  of  February  25, 1862.]    [5,  15.] 
An  Act  Supplementary  to  an  Act  Entitled  "An  Act  to  Provide 

Ways  and  Means  for  the  Support  of  the  Government,"  approved 

March  3, 1863.— Vol.  XIII,  p.  13.  Stat,  at  Large. 

Section  1.  That,  in  lieu  of  so  much  of  the  loan  authorized  (15) 
by  the  act  of  March  3, 1863,  to  which  this  is  supplementary,  the 
Secretary  of  the  Treasury  is  authorized  to  borrow,  from  time  to 
time,  on  the  credit  of  the  United  States,  not  exceeding  $200,000,000 
during  the  current  fiscal  year,  and  to  prepare  and  issue  therefor 
coupon  or  registered  bonds  of  the  United  States,  bearing  date 
March  1, 1864,  or  any  subsequent  period,  redeemable  at  the  pleas- 
tire  of  the  Government  after  any  period  not  less  than  five  years, 
and  payable  at  any  period  not  more  than  forty  years  from  date, 
in  coin,  and  of  such  denominations  as  may  be  found  expedient, 
not  less  than  $50,  bearing  interest  not  exceeding  6  per  cent,  a  year, 
payable  on  bonds  not  over  $100,  annually,  and  on  all  other  bonds 
semi-annually,  in  coin ;  and  he  may  dispose  of  such  bonds  at  any 
time,  on  such  terms  as  he  may  deem  most  advisable,  for  lawful 
money  of  the  United  States,  or,  at  his  discretion,  for  Treasury 
notes,  certificates  of  indebtedness,  or  certificates  of  deposit,  issued 
under  any  act  of  Congress,  and  all  bonds  issued  under  this  act 
shall  be  exempt  from  taxation  by  or  under  State  or  municipal 


246  APPENDIX. 

authority.  And  the  Secretary  of  the  Treasury  shall  pay  the  neo 
essary  expenses  of  the  preparation,  issue,  and  disposal  of  such 
bonds  out  of  any  money  in  the  Treasury  not  otherwise  appropri- 
ated, but  the  amount  so  paid  shall  not  exceed  one-half  of  1  per 
cent,  of  the  amount  of  the  bonds  so  issued  and  disposed  of. 

Sec.  2.  That  the  Secretary  of  the  Treasury  is  hereby  authorized 
to  issue  to  persons  who  subscribed  on  or  before  the  21st  day  (5) 
of  January,  1864,  for  bonds  redeemable  after  five  years,  and  pay- 
able twenty  years  from  date,  and  have  paid  into  the  Treasury  the 
amount  of  their  subscriptions,  the  bonds  by  them  respectively 
subscribed  for,  not  exceeding  .^11, 000,000,  notwithstanding  that 
such  subscriptions  may  be  in  excess  of  $500,000,000 ;  and  the  bonds 
so  issued  shall  have  the  same  force  and  effect  as  if  issued  under 
the  provisions  of  the  act  to  "Authorize  the  issue  of  United  States- 
notes  and  for  other  purposes,"  approved  February  26  [5th],  1862. 


THE  KESOLUTIOK  OF  MARCH  17, 1864. 

[This  relates  to  the  payment  of  the  interest  on  the  public  debt 

and  sale  of  coin.] 

Joint  Eesolution  Authorizing  the  Secretary  of  the  Treasury  ta 
Anticipate  the  Payment  of  Interest  on  the  Public  Debt,  and  for 
Other  Purposes. — Vol.  XIIL,  p.  404,  Stat,  at  Large. 

Be  it  Resolved,  etc.,  That  the  Secretary  of  the  Treasury  be 
authorized  to  anticipate  the  payment  of  interest  on  the  public 
debt,  by  a  period  not  exceeding  one  year,  from  time  to  time,  either 
with  or  without  a  rebate  of  interest  upon  the  coupons,  as  to  him 
may  seem  expedient;  and  he  is  hereby  authorized  to  dispose  of  any 
gold  in  the  Treasury  of  the  United  States  not  necessary  for  the 
payment  of  interest  on  the  public  debt:  Provided,  That  the 
obligation  to  create  the  sinking  fund  according  to  the  act  of 
February  25, 1862,  shall  not  be  impaired  thereby. 


THE  ACT  OF  JUNE  30,  1864. 

[This  act  established  various  limitations  upon  the  previously 
authorized  issues  of  "Temporary  Loan  Certificates,"  "Greenbacks," 
and  "the  Loan  of  1863,"  and  authorized  the  issue  of  the  bonds 
known  as  "the  Five-Twenties  of  1864,"  and  also  of  "the  Seven- 
Thirties  of  1804,"  and  "tlie  Compound  Interest  Notes  of  1864,"  and 
authorized  borrowing  bank  notes  at  6  per  cent,  interest,  and  exempts 
them  from  taxes.  [2, 3,  4,  5,  6,  7,  9,  10,  15,  16, 18.] 
An  Act  to  Provide  Ways  and  ]Means  for  the  Support  of  the  Gov- 
ernment, and  for  Other  Purposes.— Vol.  XIIL,  p.  218,  Stat,  at 
Large. 


DIGEST  OF  FINANCE  LAWS.  24T 

Section  1.  That  the  Secretary  of  the  Treasury  be,  and  he  is  (U5> 
hereby,  authorized  to  borrow,  from  time  to  time,  on  the  credit  of 
the  United  States,  ©400,000,000,  and  to  issue  therefor  coupon  or 
registered  bonds  of  the  United  States,  redeemable  at  the  pleasure 
of  the  Government,  after  any  period  not  less  than  five  nor  more 
than  thirty  years,  or,  if  deemed  expedient,  made  payable  at  any 
period  not  more  than  forty  years  from  date.  And  said  bonds  shall 
be  of  such  denominations  as  the  Secretary  of  the  Treasury  shall 
direct,  not  less  than  §50,  and  bear  an  annual  interest  not  exceed- 
ing 6  per  cent,  payable  semi-annually,  in  coin.  And  the  Secretary 
of  the  Treasury  may  dispose  of  such  bonds,  or  any  part  thereof, 
and  of  any  bonds  commonly  known  as  Five-Twenties  remaining 
unsold,  in  the  United  States,  or,  if  he  shall  find  it  expedient,  in  (.5) 
Europe,  at  any  time,  on  such  terms  as  he  may  deem  most  advisa- 
ble, for  lawful  money  of  the  United  States,  or,  at  his  discretion, 
for  Treasury  ISTotes,  Certificates  of  Indebtedness,  or  Certificates  of 
Deposit  issued  under  any  act  of  Congress.  And  all  bonds,  Treas- 
ury notes,  and  other  obligations  of  the  United  States  shall  be  ex- 
empt from  taxation  by  or  under  State  or  municipal  authority. 

Sec.  2.  That  the  Secretary  of  the  Treasury  may  issue,  on  the  (18) 
credit  of  the  United  States,  and  in  lieu  of  an  equal  amount  of 
bonds  authorized  by  the  preceding  section,  and  as  part  of  said 
loan,  not  exceeding  $200,000,000,  in  Treasury  notes  of  any  denomi- 
nation not  less  than  $10,  payable  at  any  time  not  exceeding  three 
years  from  date,  or,  if  thought  more  expedient,  redeemable  at  any 
time  after  three  years  from  date,  and  bearing  interest  not  exceed- 
ing the  rate  of  7  3-10  per  cent.,  payable  in  lawful  money  at  ma- 
turity, or,  at  the  discretion  of  the  Secretary,  semi-annually.  And 
the  said  Treasury  notes  may  be  disposed  of  by  the  Secretary  of  the 
Treasury,  on  the  best  terms  that  can  be  obtained,  for  lawful 
money;  and  such  of  them  as  shall  be  made  payable,  principal  and 
interest,  at  maturity,  shall  be  a  legal  tender  to  the  same  extent  as 
United  States  notes,  for  their  face  value,  excluding  interest,  and 
may  be  paid  to  any  creditor  of  the  United  States  at  their  face 
value,  excluding  interest,  or  to  any  creditor  willing  to  receive 
them  at  par,  including  interest ;  and  any  Treasury  notes  issued 
under  the  authority  of  this  act  may  be  made  convertible,  at  tlie 
discretion  of  the  Secretary  of  the  Treasury,  into  any  bonds  issued 
under  the  authority  of  this  act.  And  the  Secretary  of  (6,  3,  4) 
the  Treasury  may  redeem  and  cause  to  be  cancelled  and  destroyed 
any  Treasury  note  or  United  States  notes  heretofore  issued  under 
authority  of  previous  acts  of  Congress,  and  substitute,  in  lieu 
thereof,  an  equal  amount  of  Treasury  notes,  such  as  are  author- 
ized by  this  act,  or  of  other  United  States  notes :  Provided,  That  (18) 
the  total  amount  of  bonds  and  Treasury  notes  authorized  by  the 
first  and  second  sections  of  this  act  shall  not  exceed  $400,000,000 


248  APl'EXDIX. 


in  addition  .to  the  amounts  heretofore  issued;  nor  sliall  the  (6; 
total  amount  of  United  ."Mates  notes,  issued  or  to  be  issued,  evei 
exceed  6400,000,000,  and  such  additional  sum,  not  exceeding  350,- 
000,000,  as  may  be  temporarily  required  for  the  redemption  of  tem- 
porary loan ;  nor  shall  any  Treasury  note  bearing  interest,  (IS) 
issued  under  this  act,  be  a  legal  tender  in  payment  or  redemption 
■of  any  notes  issued  by  any  bank,  banking  association  or  banker, 
•calculated  or  intended  to  circulate  as  money. 

Sec.  3.  That  the  interest  on  all  bonds  heretofore  (2,  .5, 10, 15, 16) 
issued,  payable  annually,  may  be  paid  semi-annually ;  and  in  lieu 
of  such  bonds  authorized  to  be  issued,  the  Secretary  of  the  Treas- 
uiy  may  issue  bonds  bearing  interest,  payable  semi-ajnnually.  (4) 
And  he  may  also  issue  in  exchange  for  Treasury  notes  heretofore 
issued  bearing  7  3-10  per  cent,  interest,  besides  the  6  per  cent,  bonds 
heretofore  authorized,  like  bonds  of  all  the  denominations  in 
"Which  such  Treasury  notes  have  been  issued;  and  the  interest  on 
such  Treasury  notes  after  maturity  shall  be  paid  in  lawful  money, 
and  they  may  be  exchanged  for  such  bonds  at  any  time  within 
three  months  from  the  date  of  notice  of  redemption  by  the  Secre- 
tary of  the  Treasury,  after  which  the  interest  on  such  Treasury 
notes  shall  cease.  And  so  much  of  the  law  approved  March  3,  1SG4, 
as  limits  the  loan  authorized  therein  to  the  current  fiscal  (16) 
year,  is  hereby  repealed;  and  the  authority  of  the  Secretary  (10) 
of  the  Treasury  to  borrow  money  and  issue  therefor  bonds  or 
notes,  conferred  by  the  first  section  of  the  act  of  March  3,  1863, 
entitled,  "  An  act  to  provide  ways  and  means  for  the  support  of 
the  Government,"  shall  cease  on  and  after  the  passage  of  this  act, 
except  so  far  as  it  may  effect  $75,000,000  of  bonds  already  adver- 
tised. 

Sec.  4.  That  the  Secretary  of  the  Treasury  may  authorize  the  (7) 
receipt,  as  a  temporary  loan,  of  United  States  notes  or  the  notes 
of  national  banking  associations  on  deposit  for  not  less  than  thirty 
days,  in  sums  of  not  less  than  $50,  by  any  of  the  assistant  Treas- 
urers of  the  United  States  or  depositories  designated  for  that  pur- 
pose, other  than  national  banking  associations,  who  shall  issue 
certificates  of  deposit  in  such  form  as  the  Secretary  of  the  Treas- 
ury shall  prescribe,  bearing  interest  not  exceeding  6  per  cent,  annu- 
ally, and  payable  at  any  time  after  the  term  of  deposit,  and  after 
ten  days'  subsequent  notice,  unless  time  and  notice  be  waived  by 
the  Secretary  of  the  Treasury ;  and  the  Secretary  of  the  Treasury 
may  increase  the  interest  on  deposits  at  less  than  6  per  cent,  to 
that  rate,  or,  on  ten  days'  notice  to  depositors,  may  diminish  the 
rate  of  interest  as  the  public  interest  may  require;  but  the  aggre- 
gate of  such  deposits  shall  not  exceed  $150,000,000,  and  the  Secre- 
tary of  the  Treasury  may  issue,  and  shall  hold  in  reserve  for  pay- 


DIGEST  OF  FIXAXCE  LAWS.  249 

ment  of  such  deposits,  United  States  notes  not  exceeding  $50,000,- 
000,  including  the  amount  already  applied  in  such  payment ;  and 
the  United  States  notes  so  held  in  reserve  shall  be  used  only  when 
needed,  in  his  judgment,  for  the  prompt  payment  of  such  deposits 
on  demand,  and  shall  be  withdrawn  and  placed  again  in  reserve 
as  the  amount  of  deposits  shall  again  increase. 

Sec.  5.  That  the  Secretary  of  the  Treasury  may  issue  notes  (9) 
of  the  fractions  of  a  dollar,  as  now  used  for  currency,  in  such 
form,  Avith  such  inscriptions  and  with  such  safeguards  against 
counterfeiting  as  he  may  judge  best,  and  provide  for  the  engrav- 
ing and  preparation,  and  for  the  issue  of  the  same,  as  well  as  of 
all  other  notes  and  bonds,  and  other  obligations,  and  shall  make 
suck  regulations  for  the  redemption  of  said  fractional  notes  and 
other  notes  when  mutilated  or  defaced,  and  for  the  receipt  of  said 
fractional  notes  in  payment  of  debts  to  the  United  States,  except 
for  customs,  in  such  sums,  not  over  five  dollars,  as  may  appear  to 
him  expedient;  and  it  is  hereby  declared  that  all  laws  and  parts 
of  laws  applicable  to  the  fractional  notes  engraved  and  issued  as 
herein  authorized,  apply  equally  and  with  like  force  to  all  the 
fractional  notes  heretofore  authorized,  whether  known  as  postage 
currency  or  otherwise,  and  to  postage  stamps  issued  as  currency; 
but  the  whole  amount  of  all  descriptions  of  notes  or  stamps  less 
than  one  dollar,  issued  as  currency,  shall  not  exceed  fifty  millions 
of  dollars. 

Sections  6  to  12,  inclusive,  relate  to  the  details  of  the  printing 
and  issuing  of  these  bonds  and  notes  and  to  the  penalties  for  their 
counterfeiting. 

Sec.  13.  That  the  words  "obligation  or  other  security  of  the 
United  States,"  used  in  this  act,  shall  be  held  to  include  and  mean 
all  bonds,  coupons,  national  currency,  United  States  notes.  Treas- 
ury notes,  fractional  notes,  checks  for  money  of  authorized  officers 
of  the  United  States,  certificates  of  Indebtedness,  certificates  of 
deposit,  stamps,  and  other  representatives  of  value  of  whatever 
denomination,  which  have  been  or  may  be  issued  imder  any  act  of 
Congress. 


THE  ACT  OF  JULY  2, 1864. 

Vol.  XII.,  p.  356,  Stat,  at  Large. 

[This  act  amends  the  Pacific  Eailroad  Act  of  1862,  and  we  give 
only  the  section  relating  to  United  States  bonds.] 

Section  10.  That  section  five  of  said  act  be  so  modified  and  (31) 
amended  that  the  Union  Pacific  Railroad  Company,  the  Central 
Pacific  Railroad  Company,  and  any  other  company  authorized  to 
participate  in  the  construction  of  said  road,  may,  on  the  com- 


:i50  APPEXDIX'. 

pletion  of  each  section  of  said  road,  as  provided  in  this  act,  and 
the  act  to  which  this  act  is  an  amendment,  issue  their  first  mort- 
gage bonds  on  their  respective  railroad  and  telegraph  lines  to  an 
amount  not  exceeding  the  amount  of  the  bonds  of  the  United 
States,  and  of  even  tenor  and  date,  time  of  maturity,  rate  and 
character  of  interest,  with  the  bonds  authorized  to  be  issued  to 
said  railroad  companies  respectively.  And  the  lien  of  the  United 
States  bonds  shall  be  subordinate  to  that  of  the  bonds  of  any  or 
either  of  said  companies  hereby  authorized  to  be  issued  on  their 
respective  roads,  property  and  equipments,  except  as  to  the  pro- 
visions of  the  sixth  section  of  the  act  to  which  this  act  is  an 
amendment,  relating  to  the  transmission  of  dispatches  and  the 
transportation  of  mails,  troops,  munitions  of  war,  supplies  and 
public  stores  for  the  Government  of  the  United  States. 


THE  ACT  OF  JANUAliY  28,  1865. 

[This  act  was  supplementary  to  two  which  had  preceded  it,  and 
authorized  no  new  issues  of  Government  paper.]    [5,6, 17,  IS.] 
An  Act  to  Amend  An  Act  Entitled  "An  Act  to  Provide  Ways 

and  Means  for  the  Support  of  the  Government,  and  for  Other 

Purposes,"  Approved  June  Thirtieth,  Eighteen  Hundred  and 

Sixty-four.— Vol.  XIII.,  p.  425,  Stat,  at  Large. 

Section  1.  That  in  lieu  of  any  bonds  authorized  to  be  (17,  18) 
issued  by  the  first  section  of  the  act  entitled  "An  act  to  provide 
ways  and  means  for  the  support  of  the  Government,"  approved 
June  30, 1864,  that  may  remain  unsold  at  the  date  of  this  act,  the 
Secretary  of  the  Treasury  may  issue,  under  the  authority  of  said 
act.  Treasury  notes  of  the  description  and  character  authorized  by 
the  second  section  of  said  act :  Provided,  That  the  whole  amount 
of  bonds  authorized  as  aforesaid,  and  Treasury  notes  issued  and  to 
be  issued  in  lieu  thereof,  shall  not  exceed  the  sum  of  $400,000,000; 
and  such  Treasury  notes  may  be  disposed  of  for  lawful  money,  or 
for  any  other  Treasury  notes,  or  Certificates  of  Indebtedness,  or 
Certificates  of  Deposit  issued  under  any  previous  act  of  Congress; 
and  such  notes  shall  be  exempt  from  taxation  by  or  under  State 
or  municipal  authority. 

Sec.  2.  That  any  bonds  known  as  Five-Twenties,  issued  un- 
der the  act  of  February  25, 1802,  remaining  unsold,  to  an  amount  (5) 
not  exceeding  !54.00O,OO0,  may  be  disposed  of  by  the  Secretary  of 
the  'i'reasury  in  the  United  States;  or,  if  he  shall  find  it  expedient, 
in  Europe,  at  any  time,  on  such  terms  as  he  may  deem  most  ad- 
visaljle:  Provided,  That  this  act  shall  not  be  so  construed  as  (6) 
to  give  any  authority  for  the  issue  of  any  legal  tender  notes,  in 
any  form,  beyond  the  balance  unissued  of  the  amount  authorized 
by  the  second  section  of  the  act  to  which  this  is  an  amendment. 


DIGEST  OF  FINACNE  LAWS.  2.-)l 

TPIE  ACT  OF  MARCH  3,  1865. 

[Under  this  act  were  issued  "  the  Seven-Thirties  of  1865,"  and 
the  various  issues  of  bonds  known  as  "the  Five-Twenties,  of 

1865  "  and  "  the  Consols  of  1805. 1807,  and  18(;S."  This  act  constitutes 
the  first  funding  scheme.]     [1,  2,  4,  5,  7,  8,  10,  11,  12,  l.S,  14,  15,  10.] 

An  Act  to  provide  Ways  and  Means  to  support  the  Government. 
—Vol.  XIII.,  p.  468,  Stat,  at  Large. 

Section  1.  That  the  Secretary  of  the  Treasury  be  and  he  is  (20) 
hereby  autliorized  to  borrow,  from  time  to  time,  on  tlie  credit  of 
the  United  States,  in  addition  to  the  amounts  heretofore  author- 
ized, any  sums  not  exceeding  in  the  aggregate  $000,000,000,  and  to 
issue  therefor  bonds  or  Treasury  notes  of  the  United  States,  in 
such  form  as  he  may  prescribe,  and  so  much  thereof  as  may  be 
issued  in  bonds,  sliall  be  of  denominations  not  less  than  $50,  and 
may  be  made  payable  at  any  period  not  more  than  forty  years 
from  date  of  issue,  or  may  be  made  redeemable,  at  the  pleasure  of 
the  Government,  at  or  after  any  period  not  less  than  five  years  nor 
more  than  forty  years  from  date,  or  may  be  made  redeemable  and 
payable  as  aforesaid,  as  may  be  expressed  upon  their  face ;  and  so 
much  thereof  as  may  be  issued  in  Treasury  notes  may  be  made 
convertible  into  any  bonds  authorized  by  this  act,  and  may  be  of 
such  denominations— not  less  than  $50— and  bear  such  dates  and 
be  made  redeemable  or  payable  at  such  periods  as  in  the  opinion  of 
the  Secretary  of  the  Treasury  may  be  deemed  expedient.  And  the 
interest  on  such  bonds  shall  be  payable  semi-annually ;  (18)  and  on 
Treasury  notes  authorized  by  this  act  the  interest  may  be  made 
payable  semi-annually  or  annually,  or  at  maturity  thereof;  and 
the  principal,  or  interest,  or  both,  may  be  made  payable  in  coin^ 
or  in  other  lawful  money :  Provided,  That  the  rate  of  interest  (18, 20.) 
on  any  such  bonds  or  Treasury  notes,  when  payable  in  coin, 
shall  not  exceed  6  per  cent,  per  annum,  and  when  not  payable  in 
coin,  shall  not  exceed  7  3-10  per  cent,  per  annum;  and  the  rate  and 
character  of  interest  shall  be  expressed  on  all  such  bonds  or  Treas- 
ury notes:  And  provided  furtlier.  That  the  act  entitled  "An  (17) 
act  to  provide  ways  and  means  for  the  support  of  the  Govern- 
ment, and  for  other  purposes,"  approved  June  30, 1804,  shall  be  so 
construed  as  to  authorize  the  issue  of  bonds  of  any  description 
authorized  by  this  act.  (1,  2,  4,  5,  7,  8,  10,  11,  12,  13,  14,  15,  10, 
17,  18,  21,  22,  23).  And  any  Treasury  notes  or  other  obliga- 
tions bearing  interest,  issued  under  any  act  of  Congress,  may,  at 
the  discretion  of  the  Secretary  of  the  Treasury,  and  with  the  con- 
sent of  the  holder,  be  converted  into  any  description  of  bonds 
authorized  by  this  act ;  and  no  bonds  so  authorized  shall  be  con- 
sidered a  part  of  the  amount  of  $000,000,000  hereinbefore 
authorized. 


252  APPENDIX. 

Sec.  2.  That  the  Secretary  of  fthe  Treasury  may  (18.  20,  21,  22.) 
dispose  of  any  of  the  bonds  or  other  obligations  issued  under  this 
act,  either  in  the  United  States  or  elsewhere,  in  such  manner,  and 
at  such  rates,  and  under  such  conditions  as  he  may  think  advis- 
able, for  coin,  or  for  other  lawful  money  of  the  United  States,  or 
for  any  Treasury  notes,  certiflcates  of  indebtedness,  or  certificates 
of  deposit,  or  other  representatives  of  value,  which  have  been,  oi 
may  be,  issued  under  any  act  of  Congress ;  and  may,  at  his  discre- 
tion, issue  bonds  or  Treasury  notes  authorized  by  this  act,  in  pay- 
ment for  any  requisitions  for  materials  or  supplies  which  shalls 
have  been  made  by  the  appropriate  department  or  offices  upon  the 
Treasury  of  the  United  States,  on  receiving  notice  in  writing- 
through  tlie  department  or  office  making  the  requisition,  that  the 
owner  of  the  claim  for  which  the  requisition  is  issued  desires  to 
subscribe  for  an  amount  of  loan  that  will  cover  said  requisition 
or  any  part  thereof;  and  all  bonds  or  other  obligations  issued,. 
under  this  act  shall  be  exempt  from  taxation  by  or  under  State  or 
municipal  authority. 

Sec.  3.  That  all  the  provisions  of  the  act  entitle<i  "An  act  to  pro- 
vide ways  and  means  for  the  support  of  the  Government,  and  for 
other  purposes,"  approved  June  30,  1864,  in  relation  to  forms,  in- 
scriptions, devices,  and  the  printing,  attestation,  sealing,  signing^ 
and  counterfeiting  thereof,  with  such  others  as  are  applicable^ 
shall  apply  to  the  bonds  and  other  obligations  issued  under  this  (6> 
act.  Provided,  That  nothing  herein  contained  shall  be  con- 
strued as  authorizii'g  the  issue  of  legal  tender  notes  in  any  form; 
and  a  sum,  not  exceeding  one  per  centum  of  the  amount  of  bonds 
and  other  obligations  issued  under  this  act,  is  hereby  appropriated 
to  prepare  the  expenses  of  preparing  and  issuing  the  same,  and 
disposing  thereof. 


THE  ACT  OF  MAKCH  3,  1865. 

[This  act  levied  a  tax  on  State  bank  circulation.] 
An  Act  to  Amend  an  Act  Entitled  "An  Act  to  Provide  Internal 

Kevenue  to  Support  the  Government,  to  Pay  Interest  on  the 

I'ublic  Debt,  and  for  Other  Purposes,"  approved  June  30, 18G4. 

Approved  March  3,  1865.    Vol.  XIII,  p.  484. 

Section  6.  And  be  it  further  enacted,  that  every  National 
Banking  Association,  State  Bank,  or  State  Banking  Association, 
shall  pay  a  tax  of  ten  per  centum  on  the  amount  of  notes  of  any 
State  liank  or  State  Banking  Association,  paid  out  by  them  after 
tthe  first  day  of  July,  1866. 


DIGEST  OF  FINANCE  LAWS.  253 

THE  ACT  OF  APRIL  12,  18(i0. 

[This  act  authorized  the  funding  of  the  short-lived  issues  of  the 

Government  paper  into  long  term  bonds,  and  the  contraction  of 

the  "Greenbacks"  at  the  rate  of    $10,000,000  in  the  coming  six 

months,  and  of  not  more  than  $4,000,000  per  month  after  that,  and 

-completes the  first  funding  scheme.]    [0.] 

An  Act  to  amend  an  act  entitled  ''An  act  to  provide  waj'S  and 

means  to  support  the  Government,"  approved  March  3,  1805. — 

Vol.  XIY.,  p.  31.  Stat,  at  Large. 

Section  1.  That  the  act  entitled,  "An  act  to  provide  ways  and  (6) 
means  to  support  the  Government,"  approved  March  3. 1865,  shall 
be  extended  and  construed  to  authorize  the  Secretary  of  the  Treas- 
ury, at  his  discretion,  to  receive  any  Treasury  notes  or  other  obli- 
gations issued  under  any  act  of  Congress,  whether  bearing  interest 
or  not,  in  exchange  for  any  description  of  bonds  authorized  by  the 
act  to  which  this  is  an  amendment;  and  also  to  dispose  of  any 
ilescription  of  bonds  authorized  by  said  act,  either  in  the  United 
States  or  elsewhere,  to  such  an  amount,  in  such  manner,  and  at 
such  rates  he  may  think  advisable,  for  lawful  money  of  the  United 
■  States,  or  for  any  Treasury  notes,  certificates  of  indebtedness,  or  cer- 
tificates of  deposit,  or  other  representatives  of  value,  which  have 
been,  or  which  may  be,  issued  under  any  act  of  Congress,  the  pro- 
ceeds thereof  to  be  used  only  for  retiring  Treasury  notes  or  other 
-obligations  issued  under  any  act  of  Congress ;  but  nothing  herein 
contained  shall  be  construed  to  authorize  any  increase  of  the  pub- 
lic debt :  Provided,  that  of  United  States  notes  not  more  than  $10,- 
000,000  may  be  retired  and  cancelled  within  six  months  from  the 
passage  of  this  act,  nd  thereafter  not  more  than  $4,000,000  in  any 
one  month:  And  provided  further.  That  the  act  to  which  this  is 
an  amendment  shall  continue  in  full  force  in  allits  provisions, 
except  as  modified  by  this  act. 

Sec.  2  required  a  report  to  Congress  of  operations  under  this  act. 


THE  ACT  OF  MARCH  2, 1867. 

[This  act  authorized  the  issue  of  the  "Three  per  cent.  Certifi- 
■  c^tes"  to  retire  the  "Compound  Interest  ISTotes."]    [14,  24.] 
An  Act  to  Provide  Ways  and  Means  for  the  Payment  of  Com 

pound  Interest  Xotes.— Vol.  XIV.,  p.  558,  Stat,  at  Large. 

Section  l.  Tliat  for  the  purpose  of  redeeming  and  retiring, 
any  compound  interest  notes  outstanding,  the  Secretary  of  (14,  24.) 
the  Treasury  is  hereby  authorized  and  directed  to  issue  temporary 
loan  certificates  in  the  manner  prescribed  by  section  4  of  the  act 
entitled  "An  act  to  authorize  the  issue  of  United  States  notes 
and  for  the  redemption  or  funding  thereof,  and  for  funding  the 


254  APPENDIX. 

floating  debt  of  the  United  States,"  approved  February  25,  1SG2,, 
bearing  interest  at  a  rate  not  exceeding  three  per  centum  per 
annum,  principal  and  interest  payable  in  lawful  money  on 
demand ;  and  said  certificates  of  temporary  loan  may  constitute 
and  be  held  by  any  national  bank  holding  or  owning  the  same,  as 
a  part  of  the  reserve  provided  for  in  sections  31  and  32  of  the  act 
entitled  "An  act  to  jirovide  a  national  currency  secured  by  a 
pledge  of  United  States  bonds,  and  to  provide  for  the  circulation 
and  redemption  thereof,"  approved  June  3, 1864.  Provided,  That 
not  less  than  two-fifths  of  the  entire  reserve  of  such  bank  shall 
consist  of  lawful  money  of  the  LFnited  States.  And  Provided,  fur- 
ther. That  the  amount  of  such  temporary  certificates  at  any  time 
outstanding  shall  not  exceed  $50,000,000. 


THE  ACT  OF  MARCH  26, 1867. 

[This  act  levied  a  tax  on  Corporate  Scrip.  We  print  it  in  full  as 
a  "specimen  brick."] 

An  Act  to  Exempt  Wrapping  Paper  Made  From  Wood  or  Corn- 
stalks from  Internal  Tax  and  for  Other  Purposes. — Vol.  XV.,  p. 

6,  Stat,  at  Large. 

Sec.  1.  That  from  and  after  the  passage  of  this  act,  wrapping 
paper  made  from  wood  or  cornstalks  shall  be  exempt  from  inter- 
nal tax. 

Sec.  2.  And  be  it  further  enacted,  that  every  National  Banking 
Association,  State  Bank  or  Banker  or  Association,  shall  pay  a  tax 
of  ten  per  centum  on  the  amount  of  notes  of  any  town,  city  or 
municipal  corporation,  paid  out  by  them  after  the  first  day  of 
May,  A.  D.  1867,  to  be  collected  in  the  mode  and  manner  in  which 
the  tax  oil  the  notes  of  state  banks  is  collected. 

Sec.  3.  And  be  it  further  enacted,  that  wrapping  paper  made 
from  ant  other  material  than  that  cited  in  the  first  section,  shall 
be  also  exempt  from  internal  taxation. 

Sec.  4.  And  be  it  further  enacted,  that  from  and  after  the  ])ass- 
age  of  this  act,  ladders  made  wholly  of  wood  shall  be  exempt  from 
internal  tax. 


THE  ACT  OF  FEBRUARY  4,  1868. 

[This  act  stopped  the  destruction  of  the  "Greenbacks"  by  Sec- 
retary McCulloch. 

An  Act  to  suspend  further  reduction  of  the  currency — Vol.  XV., 
p.  34.  Stat,  at  Large.     [6.] 

Section  l.  That,  from  and  after  the  passage  of  this  act,  the  (6) 


DICEST  OF  FIXAXCK  LAWS.  -^-j 

authority  of  the  Secretary  of  the  Treasury  to  make  any  reduction 
of  the  currency,  by  retiring  or  cancelling  United  States  notes,  sliall 
be,  and  is  hereby,  suspended ;  but  nothing  herein  contained  shall 
prevent  the  cancellation  and  destruction  of  mutilated  United 
States  notes,  and  the  replacing  of  the  same  with  notes  of  the  same 
character  and  amount. 

SCHUYLER  COLFAX, 
Speaker  of  the  House  of  Representatives. 
B.  F.  AVADE, 
President  of  the  Senate  pro  tempore. 
Indorsed  by  the  President :  "  Received  January  23, 1868." 
[Note  of  the  Department  of  State.— The  foregoing  act  hav 
ing  been  presented  to  the  President  of  the  L'l'nited  States  for  his 
approval,  and  not  having  been  returned  by  him  to  the  House  of 
Congress  in  which  it  originated  within  the  time  prescribed  by  the 
Constitution  of  the  United  States,  has  become  a  law  without  its 
approval. 


THE  ACT  OF  JULY  25,  1868. 

[This  act  continued  the  issue  of  Government  paper  known  as 
the  "  Three  per  cent.  Certificates,"  which  were  used  to  retire  the 
"  Compound  Interest  ]!^otes."]     [24.] 

An  Act  to  provide  for  a  further  issue  of  temporary  loan  certifi- 
cates, for  the  purpose  of  redeeming  and  retiring  the  remainder  of 
the  outstanding  compound  interest  notes. — Yol.  XY.,  p.  183,  Stat. 
at  Large. 

Section  1.  That  for  the  sole  purpose  of  redeeming  and  (24) 
retiring  the  remainder  of  the  compound  interest  notes  outstanding 
the  Secretary  of  the  Treasury  is  hereby  authorized  and  directed  to 
issue  an  additional  amount  of  temporary  loan  certificates,  not  ex- 
ceeding §25,000,000 ;  said  certificates  to  bear  interest  at  the  rate  of 
three  per  cent,  per  annum,  principal  and  interest,  payable  in  lawful 
money  on  demand,  and  to  be  similar  in  all  respects  to  the  certifi- 
cates authorized  by  the  act  entitled  "  An  act  to  provide  ways  and 
means  for  the  payment  of  compound  interest  notes,"  approved 
March  2, 1807 ;  and  the  said  certificates  may  constitute  and  be  held 
by  any  national  bank  holding  or  owning  the  same  as  a  part  of  the 
reserve,  in  accordance  with  the  provisions  of  the  above  mentioned 
act  of  March  2. 1867. 


THE  ACT  OF  MARCH  18, 1869. 

[This  is  the  familiar  statute  popularly  known  as  the  "Public 
Credit  act."]     [1,  2.  3,  4,  5,  O,  10,  17,  20,  21,  22.  23.] 


256  •  APrENDIX. 

Ajst  Act  to  strengthen  the  public  credit. — Vol.  XVI.,  p.  1,  Stat, 
at  Large. 

Section  1.  That  in  order  to  remove  any  doubt  as  to  the  purpose 
of  the  Government  to  discharge  all  just  obligations  to  the  public 
creditors,  and  to  settle  conflicting  questions  and  interpretations  of 
the  laws  by  virtue  of  which  such  obligations  have  been  contracted, 
it  is  hereby  provided  and  declared,  that  the  faith  of  the  United 
States  is  solemnly  pledged  to  the  payment  in  coin  or  its  equivalent 
of  all  the  obligations  of  the  United  States  not  bearing  interest, 
known  as  United  States  notes,  and  of  all  the  interest-bearing  obli- 
gations of  the  United  States,  except  in  cases  where  the  law  author- 
izing the  issue  of  any  such  obligation  has  expressly  provided  that 
the  same  may  be  paid  in  lawful  money,  or  other  currency  than 
gold  and  silver.  But  none  of  said  interest-bearing  obligations  not 
already  due  shall  be  redeemed  or  paid  before  maturity,  unless  at 
such  time  United  States  notes  shall  be  convertible  into  coin,  at  the 
option  of  the  holder,  or  unless  at  such  time  bonds  of  the  United 
States  bearing  a  lower  rate  of  interest  than  the  bonds  to  be  re- 
deemed can  be  sold  at  par  in  coin.  And  the  United  States  also 
solemnly  pledges  its  faith  to  make  provision  at  the  earliest  prac- 
ticable period  for  the  redemption  of  the  United  States  notes  in 
coin. 


THE  ACT  OF  JULY  12,  1870.  (24) 

[This  act  merely  authorized  the  issue  of  $54,000,000  of  National 
Bank  circulation  in  addition  to  the  $300,000,000  originally  author 
ized,  and  provided  for  the  retirement  of  "  Three  per  cent.  Certifl 
eates  "  as  rapidly  as  such  issue  was  made.    It  can  be  found  in  full 
on  page  251,  vol.  XVI,  Stat,  at  Large.] 


THE  ACT  OF  JULY  14,  1870. 

[This  is  the  well-known  "  Refunding  Act,"  and  constitutes  the 
second  funding  scheme.]     [25,  26.  27.] 

An  Act  to  Authorize  the  Hefunding  of  the  ]S"ational  Debt.— Vol. 
XVI.,  p.  272,  Stat,  at  Large. 

Section  l.  That  the  Secretary  of  the  Treasury  is  hereby  (25) 
authorized  to  issue  in  a  sum  or  sums  not  exceeding  in  the  aggre- 
gate $200,000,000,  coupon  or  registered  bonds  of  tlie  United  States, 
in  such  form  as  he  may  prescribe,  and  of  denominations  of  $50,  or 
some  multiple  of  that  sum,  redeemable  in  coiia  of  the  present 
standard  value,  at  the  pleasure  of  the  United  States,  after  ten  years 
from  tlie  date  of  their  issue,  and  bearing  interest,  payaljle  semi- 
annually in  such  coin,  at  tlie  rate  of  5  per  cent,  per  annum;  (20) 


DKIKST  OF  FINANCE  LAWS.  .    257 

also  a  sum  or  sums  not  exceeding  in  the  aggregate  6300,000,000  of 
like  bonds,  tlie  same  in  all  respects,  but  payable  at  the  ])loasure  of 
the  United  States,  after  hfteen  years  from  the  date  of  their  issue. 
and  bearing  interest  at  the  rate  of  4)4.  per  cent,  per  annum ;  (27) 
also  a  sum  or  sums  not  exceeding  in  the  aggregate  81.000,000,000  of 
like  bonds,  the  same  in  all  respects,  but  payable  at  the  pleasure  of 
the  United  States,  after  thirty  years  from  the  date  of  their  issue, 
and  bearing  interest  at  the  rate  of  4  per  cent,  per  annum;  all  of 
•which  said  several  classes  of  bonds,  and  the  interest  thereon,  shall 
be  exempt  from  the  payment  of  all  taxes  or  duties  of  the  United 
States,  as  well  as  from  taxation  in  any  form,  by  or  under  State, 
municipal  or  local  authority,  and  the  said  bonds  sliall  have  set 
forth  and  expressed  vipon  their  face  the  above  specified  conditions, 
and  shall,  with  their  coupons,  be  made  payable  at  the  Treasury  of 
the  United  States ;  but  nothing  in  this  act,  or  in  any  other  law  now 
in  force,  shall  be  construed  to  authorize  any  increase  whatever  of 
the  bonded  debt  of  the  United  States. 

Sec.  2.  That  the  Secretary  of  the  Treasury  (5, 15, 16, 17, 20,  21,  22, 23) 
is  hereby  authorized  to  sell  and  dispose  of  any  of  the  bonds 
issued  under  this  act,  at  not  less  than  their  par  value  for  coin, 
and  to  apply  the  proceeds  thereof  to  the  redemption  of  any  of  the 
bonds  of  the  United  States  outstanding,  and  known  as  5-20  bonds, 
at  their  par  value,  or  he  may  exchange  the  same  for  such  5-20 
toonds,  par  for  par;  but  the  bonds  hereby  authorized  shall  be  used 
for  no  other  purpose  whatsoever.  And  a  sum  not  exceeding  one- 
half  of  1  per  cent,  of  the  bonds  herein  authorized  is  hereby  appro- 
priated to  pay  the  expense  of  preparing,  issuing,  advertising  and 
disposing  of  the  same. 

Sec.  3.  That  the  payment  of  any  of  the  bonds  hereby  (25,  26,  27) 
authorized,  after  the  expiration  of  the  said  several  terms  of  ten, 
-fifteen  and  thirty  years,  shall  be  made  in  amounts  to  be  determined, 
from  time  to  time,  by  the  Secretary  of  the  Treasury,  at  his  dis- 
cretion, the  bonds  so  to  be  paid  to  be  distinguished  and  described 
by  the  dates  and  numbers,  beginning  for  each  successive  payment 
with  the  bonds  of  each  class  last  dated  and  numbered,  of  the  time 
■of  which  intended  payment  or  redemption  the  Secretary  of  the 
Treasury  shall  give  public  notice,  and  the  interest  on  the  particu- 
lar bonds  so  selected  at  any  time  to  be  paid,  shall  cease  at  the  ex- 
piration of  three  months  from  the  date  of  such  notice. 

Sec.  4.  That  the  Secretary  of  the  Treasury  (4, 5, 1 5, 16, 17, 20, 21 ,  22, 
is  hereby  authorized,  with  any  coin  of  the  Treasury  of  the  23.) 
United  States  which  he  may  lawfully  apply  to  such  purpose,  or 
which  may  be  derived  from  the  sale  of  any  of  the  bonds  the  issue 
of  which  is  provided  for  in  this  act,  to  pay  at  par  and  cancel  any 
«6  per  cent,  bonds  of  the  United  States  of  the  kind  known  as  5-20 
t)onds,  which  have  become,  or  shall  hereafter  become,  redeemable 


258  ,  APPENDIX. 

by  the  terms  of  their  issue.  But  the  particular  bonds  so  to  be  paid" 
and  cancelled  shall,  in  all  cases,  be  indicated  and  specified  byclass^ 
date  and  number,  in  the  order  of  their  numbers  and  issue,  begin- 
ning with  the  first  numbered  and  issued,  in  public  notice  to  be 
given  by  the  Secretary  of  the  Treasury,  and  in  three  months  after 
the  date  of  such  public  notice  the  interest  on  the  bonds  so  selected 
and  advertised  to  be  paid  shall  cease. 

Sec.  5.  That  the  Secretary  of  the  Treasury  is  hereby  authorized, 
at  any  time  within  two  years  from  the  passage  of  this  act,  to  (i;)) 
receive  gold  coin  of  the  United  States  on  deposit,  for  not  less  than 
thirty  days,  in  sums  of  not  less  than  $100,  with  the  Treasurer  or 
any  Assistant  Treasurer  of  the  United  States  authorized  by  the 
Secretary  of  the  Treasury  to  receive  the  same,  who  shall  issue 
therefor  certificates  of  deposit,  made  in  such  form  as  the  Secre-^ 
tary  of  the  Treasury  shall  prescribe,  and  said  certificates  of  de- 
posit shall  bear  interest  at  a  rate  not  exceeding  2^  per  cent,  per 
annum;  and  any  amount  of  gold  coin  so  deposited  may  h& 
withdrawn  from  deposit  at  any  time  after  thirty  days  from  the 
date  of  deposit,  and  after  ten  days'  notice,  and  on  the  return 
of  said  certificates:  Provided,  That  the  interest  on  all  such 
deposits  shall  cease  and  determine  at  the  pleasure  of  the  Secretary 
of  the  Treasury.  And  not  less  than  25  per  cent,  of  the  coin 
deposited  for  or  represented  by  said  certificates  of  deposit  shall  be 
retained  in  the  Treasury  for  the  payment  of  said  certificates ;  and 
the  excess  beyond  25  per  cent,  may  be  applied,  at  the  discretion  of 
the  Secretary  of  the  Treasury,  to  the  payment  or  redemption  of 
such  outstanding  bonds  of  the  United  States,  heretofore  issued,, 
and  known  as  the  5-20  bonds,  as  he  may  designate  under  the  pro- 
visions of  the  fourth  section  of  this  act ;  and  any  certificates  of 
deposit  issued  as  aforesaid  may  be  received  at  par,  with  the  inter- 
est accrued  thereon,  in  payment  for  any  bonds  authorized  to  be 
issued  by  this  act. 

Sec.  6.  That  tlie  United  States  b  .nds  purchased  and  now  held  in 
the  Treasury,  in  accordance  with  the  provisions  relating  to  a  sink- 
ing fund,  of  Section  5  of  the  act  entitled  "An  act  to  authorize  the 
issue  of  United  States  notes,  and  for  the  redemption  or  funding 
thereof,  and  for  funding  the  floating  debt  of  the  United  States," 
approved  February  25,  1802,  and  all  other  United  States  bonds 
which  have  been  purchased  by  the  Secretary  of  the  Treasury,  with- 
surplus  funds  in  the  Treasury,  and  now  held  in  tlie  Treasury  of 
the  United  States,  shall  be  canceled  and  destroyed,  a  detailed 
record  of  such  bonds  so  canceled  and  destroyed  to  be  first  made  in 
the  books  of  the  Treasury  Department.  Any  bonds  hereafter 
applied  to  said  sinking  fund,  and  all  otlier  United  States  bonds 
redeemed  or  paid  hereafter  by  tlie  United  States,  shall  also  in  like 
manner  be  recorded,  canceled,  and  destroyed,  and  tlie  auiount  of 


DIGEST  OF  FINANCE  LAWS.  ?59 

the  bonds  of  each  dass  that  have  been  canceled  and  destroyed 
shall  be  deducted  respectively  from  the  amount  of  each  class  of 
the  outstanding  debt  of  the  United  States.  In  addition  to  oilier 
amounts  that  may  be  applied  to  the  redemption  or  payment  of 
the  public  debt,  an  amount  equal  to  the  interest  on  all  bonds 
belonging  to  the  aforesaid  sinking  fund  shall  be  applied,  as  the 
Secretary  of  the  Treasury  shall  from  time  to  time  direct,  to  the 
payment  of  the  public  debt,  as  provided  for  in  section  five  of  the 
act  aforesaid.  And  the  amount  so  to  be  applied  is  hereby  appro- 
priated annually  for  that  purpose,  out  of  the  receipts  for  duties  on 
imported  goods. 


THE  ACT  OF  JAo^UARY  20,  1871. 

[This  act  is  supplementary  to  the  refunding  act  of  1870.]     [25.] 
An  Act  to  Amend  an  Act  Entitled  "An  Act  to  Authorize  the 

Eef  unding  of  the  Xational  Debt."— Vol.  XYI.,  p.  399,  Stat,  at 
Large. 

Section  1.  That  the  amount  of  bonds  authorized  by  the  act  (23> 
approved  July  14, 1870,  entitled  "An  act  to  autliorize  the  refund- 
ing of  the  national  debt,"  to  be  issued  bearing  5  per  cent,  interest 
per  annum,  be,  and  the  same  is,  increased  to  $500,000,000,  and  the 
interest  of  any  portion  of  the  bonds  issued  under  said  act,  or  tliis 
act  may,  at  the  discretion  of  the  Seeretiiry  of  the  Treasury,  be 
made  payable  quarter-yearly:  Provided,  liowever,  that  this  act 
shall  not  be  construed  to  authorize  any  increase  of  the  total 
amount  of  bonds  provided  for  by  the  act  to  which  this  act  is  an 
amendment. 


THE  ACT  OF  JUNE  8,  1872. 

[This  act  is  the  one  which  authorized  the  issues  called  "  Certifi- 
cates of  Deposit."]    \:2S.'\ 

An  Act  for  the  better  security  of  bank  reserves,  and  to  facili- 
tate bank  clearing-liouse  exchanges. — Vol.  XVII.,  p.  oo6,  Stat,  at 
Large. 

Section  1.  That  the  Secretary  of  the  Treasury  is  hereby  (28) 
authorized  to  receive  United  States  notes  on  deposit,  without  in- 
terest, from  national  banking  associations,  in  sums  not  less  than 
$10,000,  and  to  issue  certificates  therefor,  in  such  form  as  the  Sec- 
retary may  prescribe,  in  denominations  of  not  less  than  85,000, 
whicli  certificates  shall  be  payable  on  demand  in  L^nited  States 
notes,  at  the  place  where  the  deposits  were  made. 

Sec.  2.  That  the  United  States  notes  so  deposited  in  the  Treasury 
of  the  United  States  shall  not  be  counted  as  part  of  the  legal  re- 


■2CA)  APPENDIX. 

serve,  but  the  certificates  issued  therefor  may  be  held  and  counted 
by  national  banks  as  a  part  of  their  legal  reserve,  and  may  be  ac- 
cepted in  the  settlement  of  clearing-house  balances  at  the  places 
where  the  deposits  therefor  were  made. 

Sec.  3.  That  nothing  contained  in  this  act  shall  be  construed  to 
authorize  any  expansion  or  contraction  of  the  currency ;  and  the 
United  States  notes  for  which  such  certificates  are  issued,  or  other 
United  States  notes  of  like  amount,  shall  be  held  as  special  de- 
posits in  the  Treasury  and  used  only  for  the  redemption  of  such 
certificates. 


THE  ACT  OF  TEBEUAEY  12, 1873. 

[This  act  demonetized  silver."! 

An  Act  Revising  and  Amending  the  Laws  Eelative  to  the  Mints, 
Assay  Office  and  Coinage  Laws  of  the  United  States— Vol. 
XYIL,  p.  424,  Stat,  at  Large.  [We  print  here  only  the  sections 
demonitizing  the  silver  dollar.] 

Sec.  15.  That  the  silver  coins,  of  the  United  States  shall  be  a 
trade  dollar,  a  half  dollar  or  fifty  cent  piece,  a  quarter  dollar  or 
twenty-five  cent  piece,  a  dime  or  ten  cent  piece;  and  the  weight  of 
the  trade  dollar  shall  be  420  grains  Troy ;  the  weight  of  the  half 
dollar  shall  be  12  grammes  and  one  half  gramme,  the  quarter  dol- 
lar and  the  dime  shall  be  respectively  one  half  and  one-fifth  of  the 
weight  of  said  half  dollar;  and  said  coins  shall  be  a  legal  tende 
at  their  nominal  value,  for  any  amount  not  exceeding  five  dollars 
in  any  one  payment.        ******** 

Sec.  17.  That  no  coins  either  of  gold,  silver,  or  minor  coinage, 
shall  hereafter  be  issued  from  the  mint,  other  than  those  of  the 
•denominations,  standards,  and  weights  herein  set  forth. 


THE  ACT  OF  JUNE  20,  1874. 

[This  act  released  the  banks  from  keeping  circulation  reserves, 
and  limited  the  greenbacks  to  8382,000,000.]  (0) 
An  Act  Fixing  the  Amount  of  United  States  Notes,  Providing 

for  a  Redistribution  of  National  Bank  Currency,  and  for  Other 

Purposes.— Vol.  XVIII.,  p.  123,  Stat,  at  Large. 

Sec.  1.  Refers  to  a  redistribution  of  National  Bank  Currency. 

Sec.  2.  That  section  thirty-one  of  the  National  Bank  act  be  so 
amended,  that  the  several  associations  tlierein  provided  for  shall 
not  hereafter  be  required  to  keep  on  hand  aay  amount  of  money 
whatever,  by  reason  of  theamount  of  their  respective  circulations; 
fcut  tlie  moneys  required  by  said  section  to  be  k('i)t  at  all  times 


DIGEST  OF  FINANCE  LAWS  26t 

Oil  liiiiul  sh;ill  be  determined  by  the  amount  of  deposits  in  all  re- 
spects as  provided  for  in  said  section. 

Sec.  3  provides  for  a  5  per  cent,  redemption  f nnd  to  be  placed 
in  the  hands  of  the  United  States  Treasurer  and  counted  as  a  part 
of  the  reserves. 

Sec.  6.  That  the  amount  of  the  United  States  notes  outstanding 
and  to  be  used  as  a  part  of  the  circulated  medium,  shall  not  (6) 
exceed  the  sum  of  §382,000,000,  which  said  sum  shall  appear  in 
each  monthly  statement  of  the  public  debt,  and  no  part  thereof 
shall  be  held  or  used  as  a  reserve. 


THE  ACT  OF  DECEMBER  17,  1873. 

[This  act  provided  for  the  payment  in  full  of  the  bonds  known 
as  "  The  Loan  of  1858,"  and  for  the  issue  of  an  equal  amount  of  the 
five  per  cent,  bonds  provided  for  by  fehe  Refunding  Act.  It  will  be 
found  in  Volume  XVIII.,  p.  1,  Stat,  at  Large.] 


THE  ACT  OF  JAi!^UART  14,  1875. 

[This  is  the  •'Resumption  Act.  It  undertakes  to  redeem  the 
greenbacks  in  coin,  and  makes  banking  free  to  all  bondholders.] 
[2,  9,  2,  5,  26,  27.] 

An  Act  to  provide  for  the  resumption  of  specie  payments. — Vol. 

XVIII.,  p.  296,  Stat,  at  Large. 

Section  1.  That  the  Secretary  of  the  Treasury  is  hereby  (9) 
authorized  and  required  as  rapidly  as  practicable,  to  cause  to  be 
coined,  at  the  mints  of  the  United  States,  silver  coins  of  the  de- 
nominations of  10,  25  and  50  cents,  of  standard  value,  and  to  issue 
them  in  redemption  of  an  equal  number  and  amount  of  fractional 
currency  of  similar  denominations,  or,  at  his  discretion,  he  may 
issue  such  silver  coins  through  the  mints,  the  Sub-Treasviries,  pub- 
lic depositaries,  and  postoffices  of  the  United  States ;  and,  upon 
such  issue,  he  is  hereby  authorized  and  required  to  redeem  an 
equal  amount  of  such  fractional  currency,  until  the  whole  amount 
of  such  fractional  currency  outstanding  shall  be  redeemed. 

Sec.  2.  That  so  much  of  section  3524  of  the  Revised  Statutes  of 
the  United  States  as  provides  for  a  charge  of  1-5  of  1  per  cent,  for 
converting  standard  gold  bullion  into  coin  is  hereby  repealed,  and 
hereafter  no  charge  shall  be  made  for  that  service. 

Sec.  3.  That  section  5177  of  the  Revised  Statutes,  limiting  the 
aggregate  amount  of  circulating  notes  of  national  banking  asso- 
ciations, be  and  is  hereby  repealed ;  and  each  existing  banking 
association  may  increase  its  circulating  notes  in  accordance  with 


262  APFENDTX. 

existing  law,  without  respect  to  said  aggregate  limit;  and  new 
banking    associations    may    be    organized    in    accordance   with 
existing     law,     without     respect     to     said     aggregate     limit; 
and    the    provisions    of    law     for    the    withdrawal    and    re- 
distribution   of    national    bank    currency    among   the  several 
States  and   Territories    are    hereby   repealed.     And   whenever, 
and     so    often,     as     circulating    notes    shall     be     issued     (6) 
to  any  such  banking  association,  so  increasing  its  capital  or  circu- 
lating notes,  or  so  newly  organized  as  aforesaid,  it  shall  be  the  duty 
of  the  Secretary  of  the  Treasury  to  redeem  the  legal  tender  United 
States  notes  in  excess  only  of  8300,000,000,  to  the  amount  of  80  per 
cent,  of  the  sum  of  national  banks  notes  so  issued  to  any  such  bank- 
ing association  as  aforesaid,  and  to  continue  such  redemption  as 
such  circulating  notes  are  issued  until  there  shall  be  outstanding  the 
sum  of  $300,000,000  of  such  legal  tender  United  States  notes  and 
no  more.    And  on  and  after  the  1st  day  of  January,  1879,  the  Sec- 
retary of  the  Treasury  shall  redeem  in  coin  the  United  States  legal 
tender  notes  then  outstanding  on  their  presentation  for  redemption 
at  the  office  of  the  Assistant  Treasurer  of  the  United  States,  in  the 
city  of  New  York,  in  sums  of  not  less  than  $50.    And  (25,  2(5,  27) 
to  enable  the  Secretary  of  the  Treasury  to  prepare  and  provide 
for  the  redemption  in  this  act  authorized  or  required,  he  is  author- 
ized to  use  any  surplus  revenues,  from  time  to  time,  in  the  Treas- 
ury, not  otherwise  appropriated,  and  to  issue,  sell,  and  dispose  of, 
at  not  less  than  par,  in  coin,  either  of  the  descriptions  of  bonds  of 
the  United  States  described  in  the  act  of  Congress  approved  July 
14, 1870,  entitled  "  An  act  to  authorize  the  refunding  of  the  national 
debt,"  with  like  qualities,  privileges  and  exemptions  to  the  extent 
necessary  to  carry  this  act  into  full  effect,  and  to  use  the  proceeds 
thereof  for  the  purposes  aforesaid.     And  all  provisions  of  law 
inconsistent  with  the  provisions  of  this  act  are  hereby  repealed. 


THE  KESOLUTION  OF  JULY  22,  1876. 

[This  related  to  the  substitution  of  silver  coin  for  fractional  cur- 
rency, and  demonetized  the  trade  dollar. — Vol.  XIX.,  p.  215,  Stat, 
at  Large.]     [9.] 

Section  1.  That  the  Secretary  of  the  Treasury,  under  such  (9) 
limits  and  regulations  as  will  best  secure  a  just  and  fair  distribu- 
tion of  the  same  through  the  country,  may  issue  the  silver  coin 
at  any  time  in  the  Treasury,  to  an  amount  not  exceeding  $10,000,- 
000,  in  exchange  for  an  equal  amount  of  legal  tender  notes,  and 
notes  so  received  in  exchange  shall  be  kept  as  a  special  fund, 
separate  and  apart  from  all  other  money  in  the  Treasury,  and  be  re- 
issued only  upon  the  retirement  and  destruction  of  a  like  sum  of 


DIGEST  OF  FINANCE  LAWS.  263 

fractional  currency  received  at  the  Treasury  in  payment  of  dues 
to  the  United  States,  and  said  fractional  currency,  whensosulisti- 
tuted,  shall  be  destroyed  and  held  as  part  of  the  sinking  fund,  as 
provided  in  the  act  approved  April  17, 1876. 

Sec.  2.  That  the  trade  dollar  shall  not  hereafter  be  a  legal  ten- 
der, and  the  Secretary  of  the  Treasury  is  hereby  authorized  to 
limit,  from,  time  to  time,  the  coinage  thereof  to  such  an  amount 
as  he  may  deem  sufficient  to  meet  the  export  demand  for  the 
same. 

Sec.  3.  That  in  addition  to  the  amount  of  subsidiary  silver  coin 
authorized  by  law  to  be  issued  in  redemption  of  the  fractional 
currency,  it  shall  be  lawful  to  manufacture  at  the  several  mints, 
and  issue  through  the  Treasury  and  its  several  offices,  such  coin  to 
an  amount  that,  including  the  amount  of  subsidiary  silver  coin 
and  of  fractional  currency  outstanding,  shall  in  the  aggregate  not 
exceed  at  any  time  ^50,000,000. 

Sec.  4.  That  the  silver  bullion  required  for  the  purposes  of  this 
resolution  shall  be  purchased,  from  time  to  time,  at  the  market 
rate,  by  the  Secretary  of  the  Treasury  with  any  money  in  the 
Treasury  not  otherwise  appropriated,  but  no  purchase  of  bullion 
shall  be  made  under  this  resolution  when  the  market  rate  for  the 
same  shall  be  such  as  will  not  admit  of  the  coinage  and  issue  as 
herein  provided  without  loss  to  the  Treasury,  and  any  gain  or 
seigniorage  arising  from  this  coinage  shall  be  accounted  for  and 
paid  into  the  Treasury  as  provided  under  existing  laws  relative 
to  subsidary  coinage :  Provided,  That  the  amount  of  money  at 
afty  time  invested  in  such  silver  bullion,  exclusive  of  such  result- 
ing coin,  shall  not  exceed  ^200,000. 


THE  ACT  OF  FEBKUARY  28, 1878. 

[This  is  the  bill  partially  remonetizing  "the  Silver  Dollar,"  and 
.authorizing  the  silver  certificates. 

An  Act  to  authorize  the  coinage  of  the  standard  silver  dollar, 
and  to  restore  its  legal  tender  character. — Vol.  XX.,  p.  25,  Stat,  at 
Large.] 

Section  1.  That  there  shall  be  coined  at  the  several  mints  of  the 
United  States  silver  dollars  of  the  weight  of  4123^  grains  Troy,  of 
standard  silver,  as  provided  in  the  act  of  January  18, 1837,  on  wliich 
shall  be  the  devices  and  superscriptions  provided  by  said  act, 
which  coins,  together  with  all  silver  dollars  heretofore  coined  by 
the  United  States,  of  like  .weight  and  fineness,  shall  be  a  legal 
tender  at  their  nominal  value  for  all  debts  and  dues,  public  and 
private,  except  where  otherwise  expressly  stipulated  in  the  con- 
tract ;  and  the  Secretary  of  the  Treasury  is  authorized  and  directed 
to  purchase,  from  time  to  time,  silver  bullion  at  the  market  price 


164  APPENDIX. 

thereof,  not  less  than  $2,000,000  worth  per  month,  nor  more  than 
$4,000,000  worth  per  month,  and  cause  the  same  to  be  coined 
monthly,  as  fast  as  so  purchased,  into  such  dollars,  and  a  sum 
suff  cient  to  carry  out  the  foregoing  provision  of  this  act  is  hereby 
appropriated  out  of  any  money  in  the  Treasury  not  otherwise- 
appropriated,  and  any  gain  or  seigniorage  arising  from  this  coinage- 
'shall  be  accounted  for  and  paid  into  the  Treasury,  as  provided  un- 
der the  existing  laws  relative  to  the  subsidiary  coinage :  Provided^ 
That  the  amount  of  money  at  any  one  time  invested  in  stock  and 
silver  bullion,  exclusive  of  such  resulting  coin,  shall  not  exceed 
$5,000,000:  And  Provided,  further,  ThKt  wothmg  in  this  act  shall 
be  construed  to  authorize  the  payment,  in  silver,  of  certificates  of 
deposit  issued  under  the  provision  of  section  254  of  the  Revised 
Statutes. 

Sec.  2.  That,  immediately  after  the  passage  of  this  act,  the 
President  shall  invite  the  Governments  of  the  countries  compos- 
ing the  Latin  Union,  so  called,  and  of  such  other  European  nations 
as  he  may  deem  advisable,  to  join  the  United  States  in  a  confer- 
ence tOj.adopt  a  common  ratio  between  gold  and  silver,  for  thfr 
purpose  of  establishing,  internationally,  the  use  of  a  bi-metiillic 
money,  and  securing  the  fixity  of  the  relative  value  between  those 
metals,  such  conference  to  be  held  at  such  place  in  Europe  or  in 
the  United  States,  at  such  a  time,  within  six  months,  as  may  be- 
mutually  agreed  upon  by  the  executives  of  the  Governments 
joining  in  the  same.  Whenever  the  Governments  so  invited,  or 
any  three  of  them,  shall  have  signified  their  willingness  to  unite 
in  the  same,  the  President  shall,  by  and  with  the  advice  and  can- 
sent  of  the  Senate,  appoint  three  commissioners,  who  shall  attend 
such  conference  on  behalf  of  the  United  States,  and  shall  report 
the  doings  thereof  to  the  President,  who  shall  transmit  the  same- 
to  Congress.  Said  commissioners  shall  receive  the  sum  of  $2,500 
and  their  reasonable  expenses,  to  be  approved  by  the  Secretary  of 
State,  and  the  amount  necessary  to  pay  such  compensation  and 
expenses  is  hereby  appropriated  out  of  any  money  in  the  Treasury 
not  otherwise  appropriated. 

Sec.  3.  That  any  holder  of  the  coin  authorized  by  this  act  may 
deposit  the  same  with  the  Treasurer,  or  any  Assistant  Treasurer  of 
the  United  States,  in  sums  not  less  than  $10,  and  receive  therefor 
certificates  of  not  less  than  $10  each,  corresponding  with  the  de- 
nominations of  United  States  notes.  The  coin  deposited  for  or 
representing  the  certificates  shall  be  retained  in  the  Treasury  for 
the  payment  of  the  same  on  demand.  Such  certificates  shall  be 
receivable  for  customs,  taxes,  and  all  public  dues,  and,  when  sa 
received,  may  be  reissued. 

Sec.  4.  All  acts  and  parts  of  acts  inconsistent  with  the  pro- 
visions of  this  act  are  hereby  repealed. 


DIGEST  OF  FINANCE  LAWS.  2G5 

THE  ACT  OF  MAY  31. 1878. 

[This  act  is  the  one  which  forbade  the  further  contraction  ol 
the  '-Greenbacks."]     [6.] 
An  Act  to  Forbid  the  Retirement  of  United  States  Legal  Tender 

Notes.— Vol.  XX.,  p.  87,  Stat,  at  Large. 

Section  1.  That,  from  and  after  the  passage  of  this  act,  it  (6) 
shall  not  be  lawful  for  the  Secretary  of  the  Treasury,  or  any  officer 
under  him,  to  cancel  or  retire  any  more  of  the  United  States  legal 
tender  notes,  and.  when  any  of  said  notes  may  be  redeemed,  or  be 
received  into  the  Treasury  under  any  law,  from  any  source  what- 
ever, and  shall  belong  to  the  United  States,  they  shall  not  be  re- 
tired, cancelled  or  destroyed,  but  they  shall  be  reissued  and  paid 
out  again,  and  kept  in  circulation :  Provided,  That  nothing  herein 
shall  prohibit  the  cancellation  and  destruction  of  mutilated  notes, 
and  the  issue  of  other  notes  of  like  denomination  in  theirstead,  as 
now  provided  by  law.  All  acts  and  parts  of  acts  in  conflict  here- 
with are  hereby  repealed. 


THE  ACT  OF  FEBRUARY  .36,  1879. 

[This  act  defeats  the  preceding  law  and  allows  the  funding  of 
greenbacks  into  4  per  cent,  bonds.] 

An  Act  to  Authorize  the  Issue  of  Certificates  of  Deposit  in  Aid 
of  the  Refunding  of  the  Public  Debt.— Vol.  XX.,  p.  321,  Stat,  at 
Large. 

That  the  Secretary  of  the  Treasury  is  hereby  authorized  and  (6) 
directed  to  issue,  in  exchange  for  lawful  money  of  the  United 
States  that  may  be  presented  for  such  exchange,  certificates  of  (30) 
deposit,  of  the  denomination  of  610,  bearing  interest  at  the  rate  of 
4  per  centum  per  annum,  and  convertible  at  any  time,  with  ac- 
crued interest,  into  the  4  per  centum  bonds  described  in  the  re- 
funding act ;  and  the  money  so  received  shall  be  applied  only  to 
the  payment  of  the  bonds  bearing  interest  at  a  rate  of  not  less 
than  5  per  centum  in  the  mode  prescribed  by  said  act,  and  he  is 
authorized  to  prescribe  rules  and  regulations  in  comformity  with 
this  act. 


THE  C0I:N'AGE  laws  of  THE  m^ITED  STATES. 

[Taken  from  the  Revised  Statutes  of  1874,  with  foot-notes  con- 
cerning all  amendments.] 

SiiiCTiON  3511.  The  gold  coins  of  the  United  States  shall  be  a  one 
dollar  piece,  which,  at  the  standard  weight  of  twenty-five  and 
eight-tenths  grains,  shall  be  the  unit  of  value;  a  quarter  eagle,  or 
17 


'266  APPENDIX. 

two  and  a  half  dollar  piece ;  a  three  dollar  piece ;  a  half  eagle,  or 
five  dollar  piece;  an  eagle,  or  ten  dollar  piece;  and  a  double  eagle, 
or  twenty  dollar  piece.  And  the  standard  weight  of  the  gold  dol- 
lar shall  be  twenty-five  and  eight-tenths  grains;  of  the  quarter 
eagle,  or  two  and  a  half  dollar  piece,  sixty-four  and  a  half  grains 
of  the  three  dollar  piece,  seventy-seven  and  four-tenths  grains;  of 
the  half  eagle,  or  five  dollar  piece,  129  grains;  of  the  eagle,  or  ten 
dollar  piece,  258  grains;  of  the  double  eagle,  or  twenty  dollar  piece, 
516  grains. 

Sec.  3512.  Any  gold  coins  in  the  Treasury  of  the  United  States, 
when  reduced  in  weight  by  natural  abrasion  more  than  one-half 
of  one  per  centum  below  the  standard  weight  prescribed  by  law, 
shall  be  recoined. 

Sec.  3513.  The  silver  coins*  of  the  United  States  shall  be  a  trade 
dollar,  t  a  half  dollar,  or  50  cent  piece,  a  quarter  dollar,  or  25  cent 
piece,  a  dime,  or  10  cents  piece;  and  the  weight  of  the  trade  dollar 
shall  be  420  grains  Troy ;  the  weight  of  the  half  dollar  shall  be  123^ 
grammes;  the  quarter  dollar  and  the  dime  shall  be,  respectively, 
one-half  and  one-fifth  of  the  weight  of  said  half  dollar. 

Sec.  3514.  The  standard  for  both  gold  and  silver  coins  of  the 
United  States  shall  be  such  that  of  1,000  parts  by  weight  900  shall 
be  of  pure  metal  and  100  of  alloy.  The  alloy  of  the  silver  coins 
shall  be  of  copper.  The  alloy  of  the  gold  coins  shall  be  of  coi)per, 
or  of  copper  and  silver ;  but  the  silver  shall  in  no  case  exceed  one- 
tenth  of  the  whole  alloy. 

Sec.  3515.  The  minor  coins  of  the  United  States  shall  be  a  five 
cent  piece,  a  three  cent  piece,  and  a  one  cent  piece.  The  alloy  for 
the  five  and  three  cent  pieces  shall  be  of  copper  and  nickel,  to  be 
composed  of  three-fourths  copper  and  one-fourth  nickel.  The  alloy 
of  the  one  cent  piece  shall  be  95  per  centum  of  copper  and  five 
per  centum  of  tin  and  zinc,  in  such  proportions  as  shall  be  deter- 
mined by  the  Director  of  the  Mint.  The  weight  of  the  piece  of 
five  cents  shall  be  77  and  16-lOOths  grains  Troy;  of  the  three  cent 
piece,  30  grains;  and  of  the  one  cent  piece,  48  grains. 

***  ***** 

Sec.  3548.  For  the  purpose  of  securing  a  due  conformity  in 
weight  of  the  coins  of  the  United  States  to  the  provisions  of  this 
title,  the  brass  Troy  pound  weight  procured  by  the  Minister  of  the 
United  States  at  liOndon,  in  the  year  1827,  for  the  use  of  the  Mint, 
and  now  in  the  custody  of  the  Mint  in  Philadelpiha,  shall  be  the 


*  By  tlie  Act  of  March  3, 1865,  a  twenty  cent  piece  of  ^he  weight  of  Ave  grammes 
was  liiovided  for,  iiDrl  by  the  act  of  Feb.  28,  1878,  the  silver  dollar  of  the  4i2"i 
grains  was  added  to  the  silver  coins.  By  the  act  of  May  2, 1878,  the  further  coin- 
age of  the  twenty  cent  piece  was  prohibited. 

t  Thi-  further  coinage  of  the  trade  dollar  was  stopped  by  the  *5ecretjiry  of  the 
Treasury,  under  the  power  conferred  upon  him  by  Sec.  2  of  the  act  of  July  22, 1876. 


DIGEST  OF  FINANCE  LAWS.  CGI 

staiulard  Troy  pound  of  the  Mint  of  the  United  States,  confonu- 
iibly  to  which  the  coinage  thereof  shall  be  regulated. 

Sec.  3563.  The  money  of  account  of  the  United  States  shall  be 
expressed  in  dollars  or  units,  dimes  or  tenths,  cents  or  hiindredtlis, 
and  mills  or  thousandths,  a  dime  being  the  tenth  part  of  a  dollar, 
a  cent  the  hundredth  part  of  a  dollar,  a  mill  the  thousandth  part 
of  a  dollar;  and  all  accounts  in  the  public  ollices  and  all  proceed- 
ings in  the  courts  shall  be  kept  and  had  in  conformity  to  this  reg- 
ulation. 

Sec.  3564.  The  value  of  foreign  coin  as  expressed  in  the  money 
account  of  the  United  States  shall  be  that  of  the  pure  metal  of 
such  coin  of  standard  value;  and  the  values  of  the  standard  coins 
in  circulation  of  the  various  nations  of  the  world  shall  be  esti- 
mated annually  by  the  Director  of  the  Mint,  and  be  proclaimed  on 
the  first  day  of  January  by  the  Secretary  of  the  Treasury. 

Sec.  3565.  In  all  payments  by  or  to  the  Treasury,  whether  made 
here  or  in  foreign  countries,  where  it  becomes  necessary  to  com- 
IHite  the  value  of  the  sovereign  or  pound  sterling,  it  shall  be 
deemed  equal  to  four  dollars  eighty-six  cents  and  six  and  one-half 
mills,  and  the  same  rule  shall  be  applied  in  appraising  merchan- 
dise imported  where  the  value  is,  by  the  invoice,  in  sovereigns  or 
pounds  sterling,  and  in  the  construction  of  contracts  payable  in 
sovereigns  or  pounds  sterling;  and  this  valuation  shall  be  the  par 
of  exchange  between  Great  Britain  and  the  United  States;  and  all 
contracts  made  after  the  first  day  of  January,  1874,  based  on  an 
assumed  par  of  exchange  with  Great  Britain  of  lifty-four  pence  to 
the  dollar,  or  four  dollars  forty-four  and  four-ninth  cents  to  the 
sovereign  or  pound  sterling,  shall  be  null  and  void. 

Sec.  3566.  All  foreign  gold  and  silver  coins  received  in  payment 
for  moneys  due  to  the  United  States  shall,  before  being  issued  iu 
circulation,  be  coined  anew. 

Sec.  3567.  The  pieces  commonly  known  as  the  quarter,  eighth, 
and  sixteenth  of  the  Spanish  pillar  dollar,  and  of  the  Mexican 
dollar,  shall  be  receivable  at  the  Treasury  of  the  United  States, 
and  its  several  oflSces,  and  at  the  several  post  offices  and  land 
offices,  at  the  rates  of  valuation  following:  the  fourtli  of  a  dolhir, 
or  piece  of  two  reals,  at  twenty  cents;  the  eighth  of  a  dollar,  or 
piece  of  one  real,  at  ten  cents ;  and  the  sixteenth  of  a  dollar,  or  half 
real,  at  five  cents. 


THE  EEYISED  STATUTES  AS  TO  THE  CUKRENCT. 

[Taken  from  the  Revised  Statutes.] 
Section  3571.  United  States  notes  shall  be  of  such  denomina- 
tions no[t]  less  than  one  dollar,  as  the  Secretary  of  the  Treasury 


2G8  APPENDIX. 

may  prescribe,  shall  not  bear  interest,  shall  be  payable  to  bearer, 
and  shall  be  in  such  form  as  the  Secretary  may  deem  best. 

Sec.  3576.  Xo  portrait  shall  be  placed  upon  any  of  the  bonds, 
securities,  notes,  fractional  or  postal  currency  of  the  United 
States,  while  the  original  of  such  portrait  is  living. 

Sec.  3579.  When  any  United  States  notes  are  returned  to  tlie 
Treasury,  they  may  be  re-issued,  from  time  to  time,  as  the  exigen- 
cies of  tlie  public  interest  may  require. 

Sec.  3580.  When  any  United  States  notes  returned  to  the  Treas- 
ury are  so  mutilated  or  otherwise  injured  as  to  be  unfit  for  use, 
the  Secretary  of  the  Treasury  is  authorized  to  replace  the  same 
with  others  of  the  same  character  and  amounts. 

Sec.  3581.  Mutilated  United  States  notes,  when  replaced  accord- 
ing to  law,  and  all  other  notes  which  by  law  are  required  to  be 
taken  up,  and  not  re-issued,  when  taken  up,  shall  be  destroyed  in 
such  manner  and  under  such  regulations  as  the  Secretary  of  the 
Treasury  may  prescribe. 

Sec.  3582.  The  authority  given  to  the  Secretary  of  the  Treasury 
to  make  any  reduction  of  the  currency,  by  retiring  and  canceling 
United  States  notes,  is  suspended. 

Sec.  3583.  Xo  person  shall  make,  issue,  circulate,  or  pay  out  any 
note,  check,  memorandum,  token,  or  other  obligation  for  a  less 
sum  than  one  dollar,  intended  to  circulate  as  money  or  to  be  re- 
ceived or  used  in  lieu  of  lawful  money  of  the  United  States;  and 
every  person  so  offending  shall  be  fined  not  more  than  8500  or 
imprisoned  not  more  than  six  months,  or  both,  at  the  discretion  of 
the  court. 


THE  REVISED  STATUTES  AS  TO  LEGAL  TENDER. 

[Taken  from  the  Revised  Statutes.] 

Section  3584.  No  foreign  gold  or  silver  coins  shall  be  a  legal 
tender  in  the  payment  of  debts. 

Sec.  3585.  The  gold  coins  of  the  United  States  shall  be  a  legal 
tender  in  all  payments  at  their  nominal  value,  wlien  not  below  the 
standard  weight  and  limit  of  tolerance  provided  by  law  for  the 
single  piece,  and,  when  reduced  in  weight  below  such  standard  and 
tolerance,  shall  be  a  legal  tender  at  valuation  in  proportion  to 
their  actual  weight. 

Sec.  3580.  The  silver  coins  of  the  United  States  shall  be  a  legal 
tender  at  their  nominal  value  for  any  amount  not  exceeding  live 
dollars  in  any  one  payment.* 

♦Amended  by  the  act  of  .July  22, 1876,  discontinuing  the  legal  tender  quality  of 
the  trade  dollar,  and  by  tlie  act  of  Feb.  2X,  isTs,  making  the  silver  dollar  a  legal 
tender  at  its  nominal  value  for  all  debts  and  dues  public  and  private. 


DIGEST  OF  FINANCE  LAWS.  269 

Sec.  3587.  The  minor  coins  of  the  United  States  shall  be  a  legal 
tender,  at  their  nominal  value,  for  any  amount  not  exceeding 
twenty-five  cents  in  any  one  payment. 

Sec.  3588.  United  States  notes  shall  be  lawful  money,  and  a  legal 
tender  in  payment  of  all  debts,  i)ublic  and  iH'ivate,  within  the 
United  States,  except  for  duties  on  imports  and  interest  on  the 
public  debt. 

Sec.  3589.  Demand  Treasury  notes  authorized  by  the  act  of  July 
17, 1861,  chapter  5,  and  the  act  of  February  12,  1862,  chapter  20, 
shall  be  lawful  money  and  a  legal  tender  in  like  manner  as  United 
States  notes. 

Sec.  3590.  Treasury  notes  issued  under  the  authority  of  the  acts 
of  March  3, 1863,  chapter  73,  and  June  30, 1864,  chapter  172,  shall  be 
legal  tender  to  the  same  extent  as  United  States  notes,  for  their 
face  value,  excluding  interest:  Provided,  That  Treasury  notes 
issued  under  the  act  last  named  shall  not  be  a  legal  tender  in  pay- 
ment or  redemption  of  any  notes  issued  by  an>  bank,  banking 
association,  or  banker,  calculated  and  intended  to  circulate  as 
money. 


THE  REVISED  STATUTES  AS  TO  RECEIVABILITY  FOR 

PUBLIC  DUES. 

[Taken  from  the  Revised  Statutes.] 

Section  3473.  All  duties  on  imports  shall  be  paid  in  gold  and  sil- 
ver coin  only  (or  coin  certificates),  or  in  demand  Treasury  notes, 
issued  under  the  authority  of  the  acts  of  July  17, 1861,  chapter  5; 
and  February  12, 1862,  chapter  20;  and  all  taxes  and  all  other  debts 
and  demands  than  duties  on  imports,  accruing  or  becoming  due  to 
the  United  States,  shall  be  paid  in  gold  and  silver  coin.  Treasury 
notes,  United  States  notes,  or  notes  of  National  banks ;  and  upon 
every  such  payment  credit  shall  be  given  for  the  amount  of  prin- 
cipal and  interest  due  on  any  Treasury  note  (or  notes)  not  received 
in  payment  on  the  day  when  the  same  are  received.— [As  amended 
by  the  act  of  February  27, 1877.] 

Sec.  3475.  The  notes  of  national  banks  shall  be  received  at  par 
for  all  debts  and  demands  owing  by  the  United  States  to  any  per- 
son within  the  United  States,  except  interest  on  the  public  debt, 
or  in  redemption  of  the  national  currency. 

Sec.  3476.  Treasury  notes  bearing  interest  may  be  paid  to  any 
creditor  of  the  United  States  at  their  face  value,  excluding  inter- 
est, or  to  any  creditor  willing  to  receive  them  at  par,  including 
interest. 


270  APPENDIX. 

THE  EEYISED  STATUTES  AS  TO  THE  PUBLIC  DEBT. 

[Taken  from  the  Revised  Statutes.] 
Sec.  3693.  The  faith  of  the  United  States  is  solemnly  pledged  to 
the  payment  in  coin  or  its  equivalent  of  all  the  obligations  of  the 
United  States  not  bearing  interest,  known  as  United  States  notes, 
and  of  all  the  interest-bearing  obligations  of  the  United  States, 
except  in  case  where  the  law  authorizing  the  issue  of  any  such 
obligation  has  expressly  provided  that  the  same  may  be  paid  in 
lawful  money  or  other  currency  than  gold  and  silver.  But  none 
of  the  interest-bearing  obligations  not  already  due  shall  be  re- 
deemed or  paid  before  maturity,  unless  at  such  time  United  States 
notes  are  convertible  into  coin  at  the  option  of  the  holder,  or  un- 
less at  such  time  bonds  of  the  United  States  bearing  a  lower  rate 
of  interest  than  the  bonds  to  be  redeemed  can  be  sold  at  par  in 
coin.  The  faith  of  the  United  States  is  also  solemnly  pledged  to 
make  provisions,  at  the  earliest  practicable  period,  for  the  redemp- 
tion of  the  United  States  notes  in  coin. 

Sec.  3701.  All  stocks,  bonds,  Treasury  notes,  and  other  obliga- 
tions of  the  United  States,  shall  be  exempt  from  taxation  by  or 
under  State  or  municipal  or  local  authority. 


AFFIDAVIT. 

STATE  OF  MICHIGAN, ) 
County  of  Kent,  and    [•  ss. 
City  of  Grand  Bapids.   ) 

Franklin  L.  Lord,  being  duly  sworn,  says  that  he  resides  in  the 
city  of  Grand  Rapids,  in  the  State  of  Michigan.  That  he  was 
employed  by  L.  V.  Moulton,  author  of  the  book  entitled  "The 
Science  of  Money  and  American  Finances,"  to  examine,  correct, 
and  verify  the  facts,  figures,  and  calculations  stated  in  said  book! 
That  for  that  purpose  he  has  carefully  examined  indexes,  manu- 
scripts, books,  records,  pamphlets,  papers,  and  reports  upon  the 
subject  now  in  the  Micliigan  State  Library  at  Lansing,  Michigan 
and  has  had  access  to  and  consulted  other  libraries,  records,  and 
sources  of  information.  That  he  has  spared  no  time,  labor,  or 
expense  in  comparing  and  verifying  the  calculations  made  from 
such  figures,  so  as  to  obtain  the  utmost  accuracy.  That  the  state- 
ments and  figures  in  the  book  have  been  compared,  so  far  as  pos- 
sil)le,  with  tlie  oflicial  records  and  original  authorities,  so  as  to 
obtain  the  utmost  exactness  and  to  secure  freedom  from  mistake. 
That  whenever  any  difference  was  found  to  exist  between  records 
or  authorities  which  were  equally  official  or  of  equal  value,  the 
one  was  chosen  wliich  was  least  favorable  to  the  conclusions  laid, 
down  in  the  book. 


DIGEST  OF  FINANCE  LAWS.  271 

That  no  fact  or  figure  in  the  book  has  been  left  to  any  loose, 
vague,  or  uncertain  conjecture,  but  by  rigid  comparison  with  the 
very  best  authorities,  he  has  endeavored  to  make  such  facts  and 
figures  definite  and  correct,  and  believes  them  to  be,  in  every 
resjtect,  just  and  true,  and  to  correspond  with  the  actual  facts  at 
their  respective  dates.  That  he  has  critically  and  carefully  com- 
puted and  tested  every  calculation  made  in  the  book  based  upon 
the  figures  therein  mentioned,  and  has  found  tlie  same  to  be  accu- 
rate. 

Subscribed  and  sworn  to  before  me  this  SOth  day  of  August, 

1S80. 

Chas.  J.  Potter, 

Justice  of  the  Peace, 

Kent  Co.,  Mich. 
Prank  L.  Lord. 


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